- ABF raises total dividends by 37%
- Primark delivers robust performance
- Further retail sales growth expected this year
Diversified food, ingredients and retail conglomerate Associated British Foods (ABF) continues to churn out good news for investors.
Shares in the company topped the FTSE 100, rising nearly 6% to £22.26 after the cash generative colossus declared a surprise special dividend plus a further £500 million share buyback and reported ‘robust’ trading at discount fashion chain Primark.
Management lauded the group’s ‘strong performance’ in a ‘demanding environment’ during the year ended 16 September 2023 and insisted Primark, the highest profile division within the group, is as ‘well placed as it has ever been’.
SPECIAL DIVIDEND SURPRISE
Annual results were slightly better than the guidance provided in Associated British Foods’ pre-close update in September, showing a 16% group revenue surge to £19.8 billion and a 9% rise in adjusted pre-tax profit to £1.47 billion after the company hiked prices across its businesses to mitigate high levels of inflation.
Associated British Foods hiked the year’s total dividend by 37% to 60p, including a 12.7p special dividend, and announced a fresh £500 million share buyback programme having recently concluded an initial £500 million buyback.
HOW IS PRIMARK PERFORMING?
Annual revenues at Primark, the jewel in the conglomerate’s crown which continues to expand in Europe and the US, rose 17% to £9 billion including like-for-like sales growth of 8.5%, although adjusted operating profit came in 3% lower at £735 million as the retailer sacrificed some margin to deliver growth.
Associated British Foods’ CEO George Weston insisted Primark’s trading was ‘excellent under the circumstances’, and while consumer demand ‘remains uncertain’, the discounter is ‘as well placed as it has ever been. We continue to believe that Primark’s offer is very attractive not just to existing customers but also to new customers engaged by our digital platform, new store openings, and word of mouth which remains as powerful as ever.’
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SUGAR PROFITS SWEETEN
Elsewhere within the group, sugar profits improved from recent lows with a strong performance from Illovo, the group’s African sugar business.
Grocery revenues were well ahead year-on-year with international brands Twinings, Ovaltine, Blue Dragon, Patak’s, Jordans and Mazzetti ‘generally’ trading well, ‘with particularly strong sales in the US’.
Turning to the UK, Associated British Foods said the performance of Allied Bakeries ‘improved considerably’ thanks to higher volumes and stronger pricing and ‘the financial losses in this business reduced as a result’.
EXPERT VIEWS
AJ Bell investment director Russ Mould explained that Primark’s competitive position is being ‘bolstered by the struggles at many of its rivals which don’t have the same level of balance sheet strength. This should support the brand’s expansion plans in the US and Germany.
‘With other parts of the business also doing well – notably the Grocery and Ingredients divisions – the company has the largesse to dole out an impressive special dividend as well as ploughing ahead with a recurring share buyback.
‘Associated British Foods can look like an odd collection of businesses but the diversification inherent in its conglomerate structure is serving it well in more uncertain times – none more so than during the pandemic when its stores were shuttered.’
Edison analyst Russell Pointon said that looking into the new financial year, Associated British Foods anticipates ‘further sales growth for Primark, driven by new store openings and digital platform enhancements, while expecting its food businesses to remain stable as inflation recedes’.
The company’s strong cash generation and strategic initiatives ‘position it for a year of meaningful progress, highlighting its ability to navigate challenging economic conditions and deliver strong performance across its diversified portfolio of businesses.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Steven Frazer) own shares in AJ Bell.
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