(Sharecast News) – Barclays has raised its target price for the shares of Associated British Foods after the food, ingredients and retail group upped its profit guidance for the full year despite shrinking margins at its Primark division.
On Tuesday, AB Foods said it now expected full-year adjusted operating profit to be “slightly better” than previous guidance, when it said earnings would be “moderately ahead” of 2021/22’s £1.43bn.
However it said adjusted operating profit margins in retail would be weaker in the second half due to higher-than-expected stock loss from stores across its estate and a modest amount of German restructuring costs, coming in at slightly below 8%.
Barclays said, despite the lower margin guidance, the outlook for the financial year to 16 September 2024 was “more positive lower (fabric) costs and FX”.
Combined with a strong performance in the grocery division, and a substantial improvement in profitability in its sugar unit, Barclays has lifted its earnings forecasts for next year by 7%. Accordingly, the target price for the stock rises to 2,400p, from 2,300p previously.
However, Barclays maintained an ‘equal weight’ rating on the shares.
“Whist Primark’s ‘shrink’ will likely be an ongoing feature of ’24, costs are coming down quickly, but with most locked in volume will be the key swing factor for ’24 LFLs as pricing fades. We see potential for Primark to boost operating leverage but turning this potential into reality will be the challenge.”
After a strong performance on Tuesday, the stock had fallen 0.5% to 2,097p on Wednesday morning.