AB Foods raises guidance again as ‘Primark continues to be favourable’

Written by

Written on Sep 12, 2023

Reading time 2 minutes

Associated British Foods raised its outlook for fiscal 2023 on Tuesday.
Liberum Capital experts continue to see upside in its stock to £24.
AJ Bell's Russ Mould commented on AB Food's trading update today.

Associated British Foods plc (LON: ABF) is up more than 5.0% this morning after raising outlook for its fiscal 2023.

AB Foods stock has upside to £24

It’s the second time that the food and retail company has raised its guidance for the current financial year.

AB Foods had previously guided for its adjusted operating profit to come in moderately ahead of last year’s £1.43 billion ($1.79 billion). But now it expects that metric to exceed those expectations. According to the experts at Liberum Capital:

Company has passed through the worst of cost inflationary pressures and various factors are aligning that should drive significant earnings growth. These will entail margin recovery.

Their “buy” rating on the U.K. stock comes with a £24 price target that suggests about a 13% upside from here.

Russ Mould reacts to its trading update

Associated British Foods now forecasts a 17% growth in Primark sales for the year ending September 16th to £9.0 billion.

It expects comparable sales to be up 9.0% on strongly in demand ranges, selective price increases, and new stores that are performing well. Reacting to its trading update today, Russ Mould – an Investment Director at AJ Bell said:

While there have been some hiccups along the way, such as unfavourable weather conditions in several geographies which has hurt footfall, outlook for Primark continues to be favourable.

Earlier this year, AB Foods agreed to buy National Milk Records for £48 million (read more).

AB Foods sees further improvement next year

The British multinational sees operating profit margin (adjusted) at Primark to be around 8.0% in fiscal 2023.

More importantly, that segment is expected to further improve that metric significantly in the coming year. AJ Bell’s Mould added in his research note on Tuesday:

Negative factors on the business have started to reverse. Think raw material and freight costs which should lead to better gross margins for its Primark retail chain.

Associated British Foods saw resilience in its food segment as well in the final quarter of this year and the company is convinced that business improve further in fiscal 2024.