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Associated British Foods plc Sees “Excellent” Performance From Primark

AB Foods

The share price of Associated British Foods (LSE: ABF) fell by 91p to 2,902p during early trade this morning after the firm announced that first-half profit will be in line with last year. What was described as “excellent” performance from discount fashion outlet Primark offset significantly lower profit from sugar.

Shares in AB Foods have had a strong start to the year, increasing 20% since the beginning of January.

The dent in sugar profit and revenue is partly attributable to the low price of sugar globally. Last year the price of sugar dipped 16% and a fourth straight global surplus for the season ending in 2014 is expected. High inventories, with China having a glut of unsold product, combined with bad weather across a host of sugar producing countries, should limit price gains.

This is an industry wide concern — earlier this month shares in Tate & Lyle, which provides sweeteners for the food and drinks industry, fell 15% after the company was forced to cut its profit outlook for 2014. 

As previously noted, elsewhere in the business Primark has been a strong performer, with sales are expected to be 13% up from last year. 

Primark has been a major success story, with shares in AB Foods adding 103p — an increase of around 4% — at the beginning of the month, following analyst suggestions that the clothes business might be undervalued. Primark could potentially be worth £30bn while its parent company has a valuation of £22bn.

AB Foods predicted that revenue in its grocery business, which includes brands such as Silver Spoon, Twinings and Ryvita, will be higher than last year, with improved margins.

The company added that:

“With a better than expected trading performance from the non-sugar businesses and lower financing costs, we continue to expect adjusted earnings per share for the financial year to be similar to 2013.”

Earnings per share in 2013 were 98p. Therefore, after this morning’s price movement, shares in Associated British Foods may trade on a P/E of 30 and offer a prospective dividend yield of 1.2%.

Of course, the decision to ‘buy’ — based on those ratings, today’s results, and the future potential group’s businesses — is solely your decision.

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> Mark does not own shares in any company mentioned.