ABF share price forecast: Will Primark bounce back?

Parent company ABF expects Primark revenue to grow by £2bn next year

The Primark sign on a shop front                                 
Primark is planning on opening 132 new stores by 2026 – Photo: Shutterstock
                                

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Primark’s store-only business model may cut down on operating costs, but Associated British Foods (AB Foods) latest earnings show it has missed a third of its selling days due to the pandemic. The parent company saw year-on-year revenue growth in all segments of the business, except retail.

However, the earnings wanted to focus on the future rather than its past results. AB Foods is expecting Primark revenue to grow by £2bn next year. It also has ambitious plans to expand into the US and other markets with 132 new Primark stores by 2026.

AB Foods is a multinational food and retail company, which is headquartered in London. It is the second largest sugar producer and has staple brands including Twinning’s and Ryvita. It is potentially most known for its retail division as the parent company of Primark.

Mixed earnings for AB Foods

AB Foods’ annual earnings reported a revenue decrease, from £13.94bn last year to £13.88bn in 2021. Despite lower sales, profit before tax was up year-on-year increasing to £725m from £686m last year. Earnings per share (EPS) had risen as well to £0.60.

Aside from retail, AB Foods saw year-on-year revenue growth in all aspects of the business. Revenue from its grocery business was up 3% to £3.59bn with growth being driven from the Twinnings brand. AB Sugar’s operating profit rose by 75% to £152m due to strong performance from the producer Illovo and savings from the cost improvement programme.

George Weston, chief executive of AB Foods, said: “We provided safe, nutritious food under the most extraordinary conditions again this year, proving the value and resilience of our supply chains. Our food businesses delivered an adjusted operating profit increase of 10%, driven by high demand and improved productivity.”

The earnings were let down by Primark revenue as the high street giant was heavily impacted by Covid. This caused ABF’s retail business to fall by 5% year-on-year to £5.59bn.

Primark

The clothes retailer’s revenue dropped as it lost a third of its available trading days this fiscal year because of the pandemic. In 2019, pre-Covid, Primark’s revenue reached £7.79bn, £2.2bn more than this year.

But it wasn’t all bad news for Primark, the chairman Michael McLintock expects Primark trading to increase by at least £2bn next year. He said: “The strength of Primark's sales after the reopening of all our stores in the spring demonstrated the relevance and appeal of our value-for-money offering.”

McLintock also took into consideration the vaccinations rollout in all of Primark’s markets and says this has allowed customers to return to the stores in large numbers.

It is evident that the company expects Primark sales to return to pre-pandemic levels as it will start increasing the number of stores. AB Foods has plans to build 132 new Primark stores by 2026 with a focus on the United States, France, Italy and Iberia markets.

Another part of Primark’s plan to boost revenue is to drive down operating costs.In the second half of this year, it reduced costs by lower employee headcount and improved labour scheduling. The company is now looking to cut down on lease costs and warehouse costs through the “harnessing of technology”. As a result, Primark will not be increasing prices this Christmas, according to Reuters.

Primark was hit harder by the pandemic than most stores, as unlike its competitors it does not have an online store. This meant that the clothes company was unable to make any revenue throughout the period the stores were closed. The earnings revealed plans to upgrade the digital presence of Primark with a redesigned UK website. However, it is unlikely that it will include an online marketplace.

AB Foods’ Competitors

Comparing Primark to online retailers, the high street shop saw higher revenue. Boohoo, owner of online fashion brands including PrettyLittleThing and Nasty Gal, reported revenue for the 2021 fiscal year at £1.75bn. Despite store closures, Primark’s revenue was £3.84bn higher.

Like AB Foods, the German company Südzucker has a wide list of products but is known for being the largest producer of sugar. Südzucker’s annual revenue of €2.25bn from sugar is much higher than AB Foods’ sugar business, which has a revenue of £1.65bn. However, Südzucker’s total sales for the year only reached €6.68bn.

The market response

Although the stock price made some gains after it fell during the pandemic, AB Foods stock price (ABF) has been on a recent bearish trend. The company released its Q3 results at the beginning of July and the ABF share price fell from 2331p on 4 July to 1965p on 18 July. 

However, the market responded very positively to the annual earnings and Primark’s strong revenue forecast. ABF share price closed on the 8 November at 1872p and opened at 1960p the following day, after the results were released. Since then, Associated British Foods share price has continued to climb and as of 10 November it has reached above the 2000p mark

ABF stock forecast

Analysts’ ABF share price forecast is for the stock to continue growing. The Financial Times surveyed 19 analysts for a 12 month ABF stock prediction. It found a median price target of 2500p. The ABF share price forecast had a strong consensus among the analysts that it would overperform. 

Eight analysts at TipRanks say the share price will climb even further. Over the next 12 months, the Associated British Foods share price forecast target is 2668p. Seven out of eight of the analysts recommended buying the stock.

However, WalletInvestor disagrees and describes it as a “bad long term investment”. Its ABF share price forecast for 2021 is it to stay above the 2000p mark. WalletInvestor said the share price will fall over the next year and its ABF price prediction for 2025 is to drop below 1500p.

FAQs

Is ABF a good stock to buy?

It might be. Although the ABF share price has been on a bearish trend, the latest results have seen a spike in its share price. The stock closed at 1875p on 8 November, and as of 10 November its above the 2000p mark. But stocks can go down as well as up, so remember to always do your own research before investing.

Will ABF stock go up?

It could do. 19 analysts surveyed by the Financial Times gave a median price prediction of 2500p. Analysts at TipRanks think it will climb even further and gave an average target of 2668p. However, WalletInvestor says it will fall over the next year and drop below 1500p in 2025. Remember, predictions can be wrong so you should never invest more than you can afford to lose.

Should I buy Associated British Foods shares?

It depends. Thirteen analysts at the Financial Times said the stock will over perform and seven analysts at TipRanks recommended buying it. But, WalletInvestor has described it as a a “bad long term investment” as the price will crash in the next five years. Analysts are not always right so you should do your own research before investing.

Further reading

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