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Associated British Foods plc

Associated British Foods PLC leads FTSE 100 fallers on Primark blip

Analysts said there was scope for modest downgrades (4-5%) to 2020 earnings forecast

Associated British Foods plc -
Up in lights: The retailer's near-term performance has been solid in the face of some fairly tough market conditions

Associated British Foods plc’s (LON:ABF) shares led the list of Footsie fallers after the company predicted profit margins for the Primark clothes retail chain would weaken next year.

It was merest of blots on an otherwise pristine trading update, one in which it left earnings guidance unchanged.

Yet the shares fell 2.55% to £22.94 following the latest news release, valuing the business at £17.3bn.

Analysts said there was scope for modest downgrades (4-5%) to 2020 earnings forecasts on the back of the Primark margins update.

City buys into long-term ABF story

Nevertheless, the City still appears to buy into the long-term merits of the ABF story.

Brokers Liberum and Shore Capital reiterated positive recommendations on the stock in the wake of the pre-close statement.

The valuation, at 15.5-times next year’s earnings, isn’t particularly stretched, they pointed out.

Diversification key 

Richard Hunter, of Interactive Investor, is a fan of ABF’s diversification strategy. Its operations span groceries, agriculture, sugar, ingredients and retail.

“The overall performance has been bolstered by an anticipated strong showing from agriculture, ingredients and, in particular, grocery, where profit growth is described as “excellent”,” he said.

“Net cash has risen sharply in the period, due in part to the previous completion of a number of projects.

“In terms of potential future growth, it is Primark which tends to grab the headlines, and within that part of the business, the attempted foray into the notoriously challenging US market. Primark will open its tenth store in the autumn, with further openings planned.”

Quick facts: Associated British Foods plc

Price: £23.13

Market: LSE
Market Cap: £18.31 billion
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