Associated British Foods PLC (LON:ABF) enjoyed a sweet end to 2016, with revenues up sharply thanks primarily to stellar performances in its Primark and AB Sugar businesses.
Total group revenues for the 16 weeks to 7 January were 22% ahead of the same period last year on a constant currency basis. Even ignoring the foreign exchange tailwinds, revenues were still up 10% on an actual exchange rate basis.
As has been the case for the past decade or so, much of that growth was driven by strong sales at Primark which were up 11% on a constant currency basis (22% actual exchange rate) over the four month period.
The UK performance at the low-cost clothing retailer was particularly strong, with like-for-like sales and market share both increasing, albeit against soft comparatives. That more than offset the declines seen in Germany and the Netherlands.
For those interested in the developments of the business across the pond, ABF didn’t give too much away, simply stating that its US operations “continued to develop”.
As expected though, operating margins will decline as the year progresses reflecting the strength of the US dollar on input costs.
The other main growth driver over the period – which includes the key holiday trading season – was ABF’s sugar division.
Revenues from continuing operations were up 22% compared to last year. That figure is nearer to 40% if you take into account the benefits realised from a strengthening US dollar.
A global deficit in sugar, which is expected to continue throughout this year as well, helped push prices higher while AB Sugar also upped its production and output in Africa.
The increase in sugar prices combined with the lower beet costs and a weak sterling/ euro exchange should see the division’s full-year operating result “improve substantially”.
ABF also saw growth in its other businesses, although not to the extent seen in retail and sugar.
Margins and sales improved in its grocery arm – which includes hot drinks brands Twinings and Ovaltine, while its agriculture and ingredients business also achieved “good revenue growth” in the period.
The strong performance across its businesses meant ABF reiterated its outlook for the current year, in which it expects to make progress in adjusted operating profit and adjusted earnings.
City broker Liberum is also expecting a solid 2017 for Associated British Foods and sees the stock as a buy, with a target price of 3,100p.
“In 2017 we expect a strong rebound in group profits as sugar profits recover and Primark continues a strong store roll-out program,” said Liberum analyst Robert Waldschmidt.
“ABF offers compelling exposure to secular growth trends in retail over the next five to ten years.”
Shares were down 2%, or 55p, to £26.43.
--Updates for broker comment, share price and background information--