Associated British Foods, the fashion chain's owner, looks forward to a prosperous new year.
Cut-price fashion chain Primark enjoyed bumper Christmas sales, its owner, Associated British Foods (LSE: ABF), revealed in a trading update this morning.
All systems go
Primark's sales were up 16% in the 16 weeks to 7 January compared with a year earlier, boosted by new store openings and particularly strong trading over the Christmas period. Like-for-like sales growth was "good", though the company didn't put a figure on it.
Primark hasn't been passing high cotton costs on to customers, but cotton prices are now moderating and the group expects to see an improvement in operating margin in the second half of the year.
That bodes well for 2012 profits, particularly as the group has opened nine new stores in the UK and Europe in the past 16 weeks, taking the total number of Primark outlets to 232 and increasing selling space by 0.5m square feet to 7.8m square feet.
However, there's more to Associated British Foods -- as the name suggests -- than just Primark. AB Foods is a £9bn conglomerate, and its other businesses also enjoyed good sales growth over the period.
Total group revenue was ahead by 12% on last year, breaking down as follows:
| Business segment | Description and % of 2011 group revenue | Revenue growth 16 weeks to 7 January |
|---|
| Grocery | Manufacture of branded and private label grocery products for retail, wholesale and food service customers (33%) | +4% |
| Retail | Buying and merchandising value clothing and accessories through the Primark & Penneys retail chains (28%) | +16% |
| Sugar | The growing and processing of sugar beet and sugar cane for sale to industrial users and to Silver Spoon (19%) | +21% |
| Ingredients | Manufacture of bakers' yeast, bakery ingredients, speciality proteins, enzymes, lipids and yeast extracts (10%) | +2% |
| Agriculture | Manufacture of animal feeds and other products for the agriculture sector (10%) | +22% |
There aren't too many Footsie companies with this kind of diversified-conglomerate structure, but it has certainly served AB Foods well.
The group has continued to grow revenue and earnings per share (eps) right through the last few recessionary years -- as well as continuing to invest for the future.
Summing up the outlook for trading, the Board said that, despite economic uncertainty and continued pressure on consumer disposable incomes, "we expect growth in sales and adjusted operating profit in the coming year, with the profit improvement weighted towards the second half".
Valuation
AB Foods' shares are currently at 1,138p, little changed from yesterday's close, putting the group on a forward price-to-earnings ratio of around 13. With analysts forecasting mid-teens eps growth for the year, the shares look fair value, rather than a bargain.
There's a lot to admire about AB Foods' businesses, and I regret having spurned the chance to invest in the company last August when the general market sell-off saw the shares dip below £10.
AB Foods remains firmly on the list of shares I might buy in 2012, and I'm hoping Mr Market will be kind enough to offer me another bite of the cherry!
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