ABF27 Apr 2011 01:18
Primark and British Sugar owner Associated British Foods is another Footsie heavyweight that will be clamouring for attention on 27 April, and could see a continuation of the transfer in emphasis away from Primark to British Sugar as the main driver of growth in the short term.
“The depressed consumer environment in the UK has taken its toll on Primark’s sales growth, with like for likes slipping to 2% in recent months, while margins remain under pressure from the rising cotton price. Sugar, by contrast, is doing better than expected despite the impact of the poor UK beet crop, with Spain and China performing strongly thanks to the tightness of global supply. Grocery has been held back by a disappointing Australian performance,” broker RBS Hoare Govett said.
The broker is not expecting Wednesday’s trading statement to prompt a change in full year forecasts. It thinks management may focus attention on the potential profits windfall in 2012 from the sharp increase in European Union sugar prices in the event that it has better volumes from a normal beet crop. “This may push consensus EPS forecasts higher, though the continued pressure on Primark margins from high cotton prices remains a concern,” RBS Hoare Govett concluded.
Charles Stanley, meanwhile, thinks AB Foods will announce interim sales of £5.16bn, up from £4.73bn a year earlier, and earnings per share of 32.3p, up from 30.5p.
“Investor interest is likely to centre on the Primark retail chain where visibility regarding the outlook is cloudy and sentiment negative both in the context of a difficult environment for UK discretionary spending and given the difficult backdrop for input costs which are likely to have risen,” writes the broker’s head of investment research, Jeremy Batstone-Carr.
“We have been wary regarding prospects for this business (c.27% total group sales, 35% group operating profit) for some time and suspect that margins are unlikely to revive in the near future. What AB Foods has to say regarding prospects for this business is likely to determine sentiment towards the shares in the immediate aftermath of the results’ release,” the broker reckons.
Batstone-Carr thinks Primark’s reported sales will be up by around 10% year on year, with like for like sales growth running at about 3%.
“With regard to the outlook we expect AB Foods to remain cautious but to continue to guide for higher earnings over the fiscal year. The extent of that profit growth is likely to be fairly subdued in our view, a reflection of rising cost pressures. We expect to have to lower estimates again in the wake of these results,” Charles Stanley said.
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