With oil holding steady despite the weekend’s failure by oil producers to agree an output freeze, leading shares are moving higher again, with Primark owner Associated British Foods one of the big gainers following its latest figures.
The company reported a 3% rise in half year profits to a better than expected £486m, but the figures were sweetened by a revival in the sugar business, which recorded a small improvement after several years of decline. The business benefited from cost cutting which the company said was necessary with sugar prices low and the withdrawal of EU quotas expected next year.
ABF said movements in exchange rates had held back profits, but sterling’s recent weakness would benefit the business in the second half if the trend continued.
Indeed profits at Primark fell at actual exchange rates, and trading was also tough around Christmas due to the unseasonably warm weather. Like for like sales in the first half were down 1%, but it said the early trading at its US stores had been encouraging.
But the company warned of uncertainties over the EU referendum and the proposed sugar tax on soft drinks unveiled in the budget. In a buy note Liberum said|:
ABF offers investors compelling exposure to secular growth trends in retail. Primark’s brand of fast fashion at affordable prices coupled with a buzzy and trendy shopping experience resonates with a wide spread of consumers. ABF’s deliberate and considered expansion into Continental Europe demonstrates that the concept is portable. We expect similar results in the US as the group dips its toe into the market with 8 stores in the Northeast. We estimate that Primark can double sales and profits over the next 5 years boosted by the occasional store parcel. The shakeout in EU sugar should lead to industry consolidation, lower beet prices and cost savings boosting Sugar profits mid-term.
ABF’s shares have added 73p to £34.20, but other clothing retailers have slipped back on the comments about Primark’s first half trading. Marks and Spencer is down 4.1p at 438.4p while Next has fallen 25p to £54.05.
Overall the FTSE 100 is up 38.02 points to 6391.54, as Brent crude added 0.8% to $43.26. A strike in Kuwait is outweighing worries about the inability of Opec and other producers to take action to stem the supply glut.
Despite this, commodity companies are mixed. Royal Dutch Shell B shares have slipped 12.5p to 1792.5p while Rio Tinto is down 6.5p to £22.62 after its production update. But Anglo American has added 15.4p to 709p.
But Vodafone has added 4.4p to 232.75p after Goldman Sachs raised its target price from 246p to 260p late on Monday.
