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Associated British Foods and the Boston tea party

Published: 11:06 02 Nov 2015 EST

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Will Boston buy into the Primark concept?

Full year results from Associated British Foods (LON:ABF) may be short on surprises in the rear view mirror after September's comprehensive pre-close update.

The diversified group, best known for its ownership of high street star Primark, said operating profit on a constant currency basis would be ahead of the previous year in its Grocery, Agriculture, Ingredients and Retail divisions but the beleaguered Sugar business would, as previously indicated, suffer a decline.

Adverse currency impacts are also set to slow down what has been an impressive money harvesting machine for some time now and the market is braced for a modest decline in adjusted earnings per share (EPS).

The consensus forecast is for earning per share of 102.53p, down from 104.1p the year before.

Profit before tax is pencilled in as £1.08bn, up from £1.02bn last year, on sales of £12.94bn, unchanged from a year earlier.

Of much more interest to analysts will be the outlook for the current year, and whether they need to revise their current EPS forecasts, where the median number is currently suggesting another year of declining earnings, to 98.38p.

Although the strength of sterling obviously helps in terms of securing cheap produce for Primark, which has succeeded on a simple formula of providing clothes people want to wear at a price they can afford, the company's extensive overseas interests mean forex head-winds are getting increasingly hard to overcome.

Talking of overseas, given the importance of Primark in driving the share price of Associated British Foods over the last decade or so, the success (or otherwise) of the group's venture into the USA, otherwise known as the graveyard of British retailers, is critical in terms of providing a potential catalyst for a share re-rating.

The group recently opened a flagship store in Boston, arguably the most European of US cities, and analysts will be gagging for an update on how it is faring.

Similarly, a word or two on the pace at which the Primark format will be rolled out on the European mainland would be appreciated.

The first Italian store is due to open next year and while it is not quite a case of taking coal to Newcastle, it might be a case of taking coal to Saudi Arabia ...

“Primark continues to generate investor excitement with its remarkable brand, after shooting the lights out with its French market entry, it is now taking on the USA and its first store in Boston. Any snippets on that opening will be interesting,” suggests Shore Capital.

Meanwhile, Sugar remains the problem child of the family, and between them Primark and Sugar have overshadowed a Grocery division that has quietly been turning in solid performance for some time on the back of strong performances from Twinings and Ovaltine.

 

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