Associated British Foods (AB Foods) provided a “strong” trading update today, but unchanged full year guidance means brokers largely left their ratings as they were.
The FTSE 100 listed company noted significant growth especially from Primark, the retail arm of the conglomerate.
UK sales grew by 15% at the discount fashion retailer, while adjusted profits margins for the first quarter were “better than expected”.
Citigroup raised its forecast for Primark’s sales, citing the clothing company’s “store-led strength of its UK peers and recent country market prints”.
“We note the outperformance of stores vs online in the UK clothing retail market and the probability that Primark has matched or outperformed the MKS/NXT stores,” Citigroup added.
“While we expect the pandemic channel rebound to fade,” the New York bank still expects full year underlying earnings to increase by 2.5%.
“We had a very strong Christmas period,” AB Foods said in a trading update, but warned “macro-economic headwinds remain and may weigh on consumer spending in the months ahead.”
“Inflation has become less volatile and recently some commodity costs have declined,” said AB Foods.
US peer Jefferies added. “Input deflation helps map out a hefty margin rebound next year (the underpin for our 5% higher-than-consensus 23/24e EPS estimate),”
However, inflation continued pressure to AB Foods grocery and sugar businesses and that could offset margin gains, Jefferies warned.
Jefferies reiterated its “hold” rating for AB Foods, targeting its share price to fall to £17.50.
UBS added the London based company’s “commentary on costs and Primark margins in the period is positive”.
The company should also expect its aggregate food businesses to see profits ahead of 2022 despite lowered margins, the Swiss bank added.
“The market already expected strong Primark trading and also a potential upgrade to the full year margin outlook given the resurgence of the USD/GBP exchange rate,” the investment bank said.
However, whilst overall trading highlights stronger margins, zero changes to guidance means UBS “expect a broadly neutral reaction” from investors.
The bank targets a £18.70 target price for the stock, whilst Shore Capital remain slightly more optimistic given its “buy” rating- although still targeting the same price as UBS.
“We are pleased,” said broker. “The share has commenced FY23 in a sound to encouraging manner (+18% YTD) with smoke signals to what may be a better than previously feared earnings outcomes.”
AB Foods is currently trading at £18.29 having fallen 2.1% today.