AB Foods sees no short term impact from Coronavirus

The conglomerate expects sales to continue growing, despite the spread of the virus in China.

Article updated: 24 February 2020 10:00am Author: Ian Forrest

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  • Group expects sales to grow in the first half of the year although reported earnings will fall back slightly due to the adoption of new accounting rules
  • Profit growth at Primark and the sugar operations is expected in the second half which means previous guidance for a rise in full-year earnings remains unchanged
  • Sales at Primark are expected to rise 4.2% in the first half although like-for-like sales in the UK were down 1.3%, while the performance was better in other markets in the Eurozone and the US
  • Investors welcome the statement of no expected impact from coronavirus in the short term, despite it having some food operations in China and Primark also sources some of its products there
  • Recommendation: The valuation of the shares doesn't appear cheap but overall we continue to view them as a strong ‘Hold’ for growth-orientated investors seeking medium risk

International conglomerate Associated British Foods said today that it expects sales to grow in the first half, although reported earnings will fall back slightly due to the adoption of new accounting rules. However, profit growth at Primark and the sugar operations is expected in the second half, which means the previous guidance for a rise in full-year earnings remains unchanged. The company does not expect any impact from the coronavirus outbreak in the short term, despite the fact that it has some food operations in China, and Primark also sources some of its products there. That could change if the situation lasts well into this year, but the company is looking at mitigating strategies. Sales at Primark are expected to rise 4.2% in the first half, although like-for-like sales in the UK were down 1.3%. The performance was better in other markets in the Eurozone and the US.

The shares fell back 1.4% in early trading (less than the market overall) and the stock has outperformed in recent months. For investors, these are solid and reassuring figures today, although they clearly come with some cautionary comments about coronavirus if the outbreak lasts well into the year. ABF will not be the last company to make such comments in this reporting season. The valuation of the shares doesn't appear cheap but, overall, we continue to view them as a strong hold for growth-orientated investors seeking medium risk.


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Ian Forrest

Investment Research Analyst

Ian’s background in investments, financial journalism and research has seen him advising private investors on equities and helping to manage portfolios. His qualifications include the Certificate in Financial Planning and the Chartered Institute for Securities & Investment’s Investment Advice Diploma.

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