Could AB Food shares have further to rise?

Associated British Foods unveils half-year results on Tuesday this week. Retailers and food producers are having a challenging time due to the current cost of living crisis and period of high inflation. Recent results from Tesco showed that profits had halved over the past year due to inflationary pressures and a non-cash revaluation of its property assets. However, like Tesco, AB Foods is showing resilience and the upcoming results are expected to be broadly positive.

AB Foods weathering the storm

The company’s trading update in February was upbeat, with sales for the half-year forecast to be 20% ahead of the previous year at actual exchange rates and 16% at current exchange rates. Like other companies, AB Foods continues to experience cost pressures, however it is successfully recovering some of this via price increases and is seeing logistics costs ease. As such, adjusted operating profits at the ingredients business are expected to be above last year’s figures.

Meanwhile, Primark is performing well, with total sales forecast to be £4.2 billion, up 19% on the same period last year at actual exchange rates and 16%. As such, full-year margins for the store chain should be in excess of 8%.

The rollout of the new Primark click and collect website is on track, operating in the UK and Ireland and rolling out to Europe and the US later this year. Meanwhile, retail space has increased by 0.5 million square feet since the year end and 13 new stores have been opened, including ABF’s first one in Romania and three in the US.

ABF cautiously confident on outlook

Nevertheless, the company is more cautious about the second-half of the year and expects like-for-like sales growth to be lower than that seen in the first-half. However, this should still be better than previous forecasts, the company says.

ABF says that it has concerns about the “resilience of consumer discretionary spending” in the face of the cost of living crisis and higher interest rates. On a positive note, energy prices have fallen. However, wage costs are rising and the cost of buying in certain goods will be higher due to the strength of the US dollar.

The shares have had a good run this year since their dip in September last year and are up 23% over the past 12 months to 2046p. In February, analysts at broker Deutsche Bank Aktiengesellschaft increased their price target on the shares from 2,180p to 2,300p. Existing investors can be forgiven for taking some profits, but the shares are still trading some way below their five-year highs of 2846p, last seen in 2018.

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