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Primark to the rescue

A robust performance at Primark is compensating for weakness at Associated British Foods' sugar business
April 17, 2014

Shares in sugar-to-clothing conglomerate Associated British Foods (ABF) dropped sharply earlier this month on news of a profit warning from German sugar group Suedzucker. Falling sugar prices are the problem and investors can expect much lower profits from ABF's sugar business when it announces half-year figures on Wednesday 23 April.

IC TIP: Sell

But sugar's current bitterness is more easily swallowed when the group's booming Primark operation is taken into account. Management says the discount clothing retailer, which some in the City think could eventually be floated, will easily offset lower profits from the sugar unit - leading to an in line half-year profit performance. Primark's sales have certainly been strong. A trading update in February revealed that Primark's like-for-like sales were expected to have risen 4 per cent in the half and that - after factoring in more retail space and superior sales densities in larger new stores - Primark's total sales were likely to be 13 per cent higher. Analysts at UBS estimate that Primark is now worth around £19bn, which accounts for almost all of the group's £20.9bn market value.