Associated British Foods PLC (LSE:ABF) has made a robust start to the 2024 fiscal year, with its Primark division playing a pivotal role, according to a post-update assessment by Liberum.
Repeating its 'buy' advice and £28 a share price target, the boutique investment bank said Primark's 2.1% like-for-like growth was "commendable" given the challenging comparison against a previous 11% increase.
This performance is a key driver behind AB Foods' increased confidence in exceeding a 10% adjusted operating margin for Primark in FY’24E, signalling a strong year ahead for the retail giant, Liberum added.
The Liberum note, which follows ABF's quarterly trading update on Tuesday, highlights the strategic successes of Primark.
Despite facing a tough comparison, the brand has managed to not only sustain growth but also improve its profitability outlook significantly. The expected margin improvement is attributed to a further enhancement in product gross margin, showcasing Primark's effective cost management and pricing strategies.
ABF's guardedly optimistic outlook comes as a relief to investors and market analysts, especially in the context of the current economic landscape, marked by fluctuating consumer spending patterns and supply chain uncertainties.
Primark's performance is particularly noteworthy, given that the retail sector has faced considerable challenges, including changing consumer preferences and the impact of online shopping.
Moreover, the stability in UK Sugar production, as mentioned in the Liberum analysis, adds another layer of positivity to ABF's overall business outlook.
The company expects production to be broadly in line with historical periods, approximately 1.0 million tonnes, which is a reassuring sign for the segment's stability and profitability.
The solid growth in ABF's Grocery business, with a 5.4% increase at constant FX, despite significant price hikes over the past 18 months, further underscores the company's robust operational capabilities, Liberum added.
In afternoon trading, the stock was up 12p at £22.97.