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27 Sep, Wednesday
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Bull Trader USA

London Markets: Cut-price clothing chain Primark zigs while others zag, boosting results for AB Foods

Surging shares of Associated British Foods brightened an otherwise dull session for London trading on Monday, after upbeat results from the food processing and retailing company.

The FTSE 100 index

was flat at 7,296, while the pound

was unchanged at $1.3560.

AB Foods

reported higher profits for the fiscal year ended Sept. 18, boosted by higher earnings at its cut-price retail unit Primark, as the company also declared a special dividend alongside an ordinary payment. Shares surged 8%, making AB Foods the best performer on the index.

The company forecast improved Primark trading, saying that it expects sales to recover at least the GBP2 billion ($2.7 billion) lost due to store closures during the pandemic. That should push Primark’s adjusted operating margin rising above 10%, it said. As well, AB Foods is planning new stores for Primark, at a time when many companies have focused on online sales.

Davy analysts Roland French and Cathal Kenny said the company’s update was reassuring. “The announcement of a special dividend allied with an ambitious store expansion plan for Primark addresses both growth and capital returns – which are not mutually exclusive,” said the team.

Primark plans to add more square feet of selling space and increase its overall store numbers to 530 from 398 stores over the next five years.

“Primark stores used to have a reputation for being a bit of a chaotic jumble sale, with items strewn everywhere. Now they feel a bit smarter, perhaps with the management having used the downtime during lockdown to come up with a plan to improve the in-store experience,” said Russ Mould, investment director at AJ Bell, in a note to clients.

“The focus now is to improve operating margins, reduce costs, have a clear sustainability strategy and roll out a better online service – which is essentially the same message from other retailers like Boohoo and ASOS,” he said.

But Primark’s new website “will just be a showcase for the products it sells; you’ll need to go into a store to buy them. It has long argued that the economics of its business, in selling cheap clothes, doesn’t support the costs associated with running a full online logistics and delivery operation,” he said.

Rolls-Royce Holdings

was another gainer, with the engine maker surging 4% on news one of its  received U.K. government backing. The stock has been popular among retail investors in recent months “because of its perceived ‘deep value’ qualities,” noted Chris Beauchamp, chief market analyst at IG.

“Coupled with the reopening of travel to the U.S., a symbol of the return to normality, the news has helped to propel the stock higher, with the price up an impressive 70% since the low of 87p in late July,” said Beauchamp.

The biggest faller was Irish energy and healthcare conglomerate DCC
which fell 3%. In the midcap FTSE 250
the biggest gainer was Watches of Switzerland
Shares of the luxury retailer surged 14% after it reported a 44% gain in first-half sales and lifted its full-year outlook.

The biggest midcap decliner was Beazley
the parent company of a specialist insurance group, which dropped 4%.

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