Katy Askew

What the analysts say: the City's take on ABF's H1

By Katy Askew | 24 April 2012

The City pointed to "weak trading" in the UK bread category

The City pointed to "weak trading" in the UK bread category

Associated British Foods reported a mixed first-half this morning (24 April), as gains in the group's sugar and Primark units offset falling profits in grocery and ingredients, which were down 32% and 40% respectively. Nevertheless, management remained upbeat on the outlook for the remainder of the year. Here is the City's view on ABF's performance. 

"The outlook is confident, with ABF expecting 'substantial growth' in EPS for the full-year... ABF comments that it expects Sugar profits to be 'well ahead of last year' while 'strong profit growth from Primark' in H2 should more than offset lower profits in Grocery and Ingredients. Whilst we are raising our interest forecast slightly, we are also edging down both our tax rate (from 26% to 25.5%) and minorities (due to weaker Chinese sugar). The net result is we are raising our full-year 2012E EPS forecast from 84.3p to 85.5p, implying 15.6% growth for the year, an impressive performance, in our view, given the economic backdrop. We also raise our 2013E EPS forecast from 90.7p to 91.2p, implying a further 6.6% growth, meaning 23% EPS growth over the two years." - Panmure analyst Graham Jones 

"Associated British Foods (ABF) have released their H1 results this morning. We think these reflect a solid first half, in line with our expectations at the Divisional trading level... Profits in Grocery were down by 32%, as we expected, driven by an estimated GBP30m H1 restructuring provision and weak trading in UK bread, Westmill Foods (UK ethnic food wholesaling) and Australian meats. Despite the weak performance, we think all these moves have been well-guided." - Martin Deboo, Investec 

"Despite the below average H1 (which management still termed "good") management was much more upbeat about prospects for H2, on both margins and earnings. Easing commodities should play a big factor here. Management guided to "substantial growth in both adjusted operating profit and adjusted EPS for the FY" which was a big change from the previous guidance of "growth in sales and adjusted operating profit in the coming year, with the profit improvement weighted towards the second half". Indeed, we were a bit surprised to hear management so bullish given its more generally conservative guidance...so this bodes very well for H2. We were already expecting a major recovery in H2 performance (+70bps of margin growth and +17% EPS growth) to drive FY EPS growth of +11% ... but that might now appear to be a little light. Based on the slight outperformance in H1 and the bullish guidance for H2/FY we would expect the stock to outperform today." - Andrew Wood, Sanford C. Bernstein 

Sectors: Bakery, Cereal, Commodities & ingredients, Financials, Meat & poultry, Private label, World foods

Companies: Associated British Foods

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