Shareholders should hold tight
TRADING updates don’t get more bullish than this. Associated British Foods yesterday said that first half profit would be “substantially higher” than last year in all divisions, with the exception of its agriculture business (even this is an anomaly, as grain prices were unusually high in 2009). That growth will continue in the second half, the firm said, meaning full year profits will be smashing. Yet again, the jewel in the cut price crown is Primark, with like-for-like sales up eight per cent on last year.
Higher interest charges on its £1.14bn debt pile and pension costs will crimp full year earnings, but ABF still expects a substantial increase. At last, after five years of stagnation, the firm has turned a corner.
Still, investors shouldn’t get carried away: much of this good news has already been priced in (analysts already expect full year operating profit to jump from £297m to £343m). The firm currently trades on 13 times prospective earnings for 2011, which is bang on the money. Shareholders should sit tight.