ABF results: sugar ‘rampant‘ but grocery 'weak'
Graham Jones, City analyst with Panmure Gordon, said: “Sales [of sugar] over the past 16 weeks have risen by a remarkable 54% – plus 28% on a year-to-date basis – driven in particular by a strong performance in Europe.”
Jones said: “The strength of the performance in Europe means we are upgrading our earnings before interest tax and amortisation [EBITA] forecast from £484M to £500M.” That compared with £315M for last year.
The European Commission (EC) reported recently that the market price for sugar rose to £562/t (€711/t) in March. ABF confirmed that the UK sugar beet harvest was 1.3Mt last season compared with 1Mt the year before.
Rampant
Martin Deboo, analyst with Investec, described ABF’s sugar business as “rampant”.
He added: “Sugars revenues were ahead by a whopping 54% in Q3 [the third quarter] on the back of strong volumes and high prices in Europe. Strong sales are feeding through to profit and we now expect our estimated financial year 2012 for sugar’s EBIT [earnings before interest and tax] to start with a 5 – £ hundred million.”
Investec “tweaked” its forecasts for ABF after the interim management statement and the acquisition of Elephant Atta. “The result is a 1% upgrade for financial year 2012 and a 3% downgrade for financial year 2013,” it said.
But both analysts agreed that ABF’s grocery business was less impressive.
Deboo described grocery as “weak”. He said: “Sugars and [clothing group] Primark continue to apply a healing balm to ABF’s travails in grocery. UK bread remains challenging, while in Australia there are further embarrassing restructuring charges – over and above the £30M in the first half.”
Panmure Gordon reduced its forecast for grocery, predicting EBITA to fall from £244M last year to £189M in 2012. The cut partly reflected restructuring costs, which are now expected to be slightly higher than the £25–30M indicated at the first half stage.
It also reflected continued difficult trading, particularly in Australia. Also, Allied Bakeries’ margins remain under pressure from promotional activity in UK bread, said Jones.
But the key profit centre Twinings Ovaltine continues to perform strongly.
Bakery ingredients
The trading patterns in ABF’s ingredients business remain the same as the first half. “With challenging conditions for [bakery ingredients business] AB Mauri … we continue to expect EBITA to fall from £61M in 2011 to £50M in 2012.”
An ABF statement pointed out: “The pressure on UK household incomes has continued this year which has driven consumers to seek value from product choice, promotions and price. The market remained intensively competitive for Allied Bakeries with promotional activity reducing margins. Jordans and Ryvita however performed strongly with both brands responding well to effective advertising.”
Shore Capital analysts Darren Shirley and Clive Black noted: “The UK market remains challenging with the consumer continuing to seek ways to save money. Allied Bakeries in particular has been adversely impacted, with high levels of promotional activity reducing margins.”
This promotional activity “will not” help Premier Foods' new management team as it works at rebuilding Hovis profitability, they added.
Shore repeated its buy recommendation for ABF.
The firm reported buoyant homebaking, particularly over the Diamond Jubilee holiday.
Group revenue during the third quarter was 11% up.
ABF said it was on track to deliver “substantial growth” in both adjusted operating profit and adjusted earnings per share for the full year.
To read more about ABF’s acquisition of the ethnic flours business Elephant Atta from Premier Foods, click here.
