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AB Foods shares rise on positive results

The owner of Primark unveils a 22% increase in sales and a £500 million share buyback scheme

Sales have recovered at Primark owner Associated British Foods Source: Bloomberg

Shares in Associated British Foods rose 2% on upbeat full-year figures from the food producer and retailer. The owner of Primark said full-year revenues rose by 22% at constant currency rates to £17 billion, while adjusted operating profits increased by 49% to £1.4 billion. Sales at Primark increased by 43% to £7.7 billion, boosted by the return of customers following the Covid-19 pandemic. Meanwhile in the food business, sales grew by 10% at constant currency rates thanks to price increases.

The company says that UK like-for-like sales in the Primark business are now broadly back to pre-Covid levels, although sales in Continental Europe were weak.

Shares in the company rose 2.3% on Tuesday, gaining a further 3% on Wednesday. As a sign of confidence, AB Foods has introduced a share buyback scheme worth £500 million, while dividends over the last year are up 8%.

AB Foods: strong revenue growth

“The Group delivered strong revenue and profit growth this year in a clear demonstration of the benefits of our diversification, brand strength, and of our commitment to disciplined financing and investment,” chief executive George Weston told investors. “The performance was achieved despite pandemic-induced disruption being followed by high and volatile input cost inflation.

“Our food businesses continued to play their important role providing safe, nutritious food in an era of supply chain disruption and high inflation. Sales increased by 10% driven by price recovery with adjusted operating profit proving resilient. Sales, margin and profits at Primark increased significantly as more normal customer behaviour resumed after the pandemic.”

In terms of outlook, Weston said that “substantial and volatile input cost inflation” will be the biggest challenge next year and that AB Foods will continue to try to recover these costs “in the most appropriate way”. However, Primark has opted to “stand by” its customers and keep prices on hold for the new financial year. Nevertheless, the company expects “significant growth” from pricing in its food business, as well as space expansion at Primark and its outlook guidance remains unchanged.

AB Foods – further mileage in the shares?

“Talk about a comeback,” said AJ Bell’s director of research, Russ Mould. “Associated British Foods’ sales and profit have jumped for joy like a shopper finding an absolute bargain. The company is fighting back from Covid with a vengeance, with its Primark chain seeing a big jump in sales as the world returns to a more normal state post-pandemic…

“Despite the uncertain backdrop in the near-term, it’s impressive to see the group say it has enough surplus cash to start a new share buyback, thereby signalling that it thinks its shares are cheap. Like most retailers, its shares have been decimated this year as the market prices in a recession. The question now is whether all this bad news is now in the price. Investors seem to think so as the shares have started to pick up since October and today’s results spur another leg up.”

Analysts at Barclays raised their price target on the shares to 1,700p from 1,500p.

At 1,509, shares in Associated British Foods have gained almost £3 since September. However, the shares remain well below their three-year highs of 2,704p and could have further mileage in them, despite the looming recession.

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