Sugar keeps things sweet for ABF

ABF’s interim management statement today reveals 12% sales growth for the group for the 16 weeks to 7 January, with revenues for its sugar division 21% ahead of last year based on higher regional sugar prices, particularly in Europe.

While management at the UK food group warns about economic uncertainty, Graham Jones, market analyst at Panmure Jones, said subsiding input costs will now start to benefit ABF as a whole and the company is the analyst firm’s top large capitalization stocks pick for 2012.

Sugar ​

Jones notes that sugar production in the UK is estimated to be 1.25mt this year, much higher than last year’s weather affected crop of just under 1.0mt, and “this together with higher prices should drive strong profits growth.”​

Cane production in China continues to be held back by last year’s drought, but beet production is expected to be significantly ahead. “Overall, this supports our forecast of a 40% rise in EBITA this year to £440m,​” added Jones.

Ingredients' challenges ​

Ingredients sales rose by 2% during Q1 for the food group, but difficulties seen at AB Mauri’s yeast and bakery ingredients businesses, particularly in H2 last year, have continued into H1 this year, and margins are expected to fall in H1, noted Jones.

Meanwhile he said better progress appears to have been made at ABF Ingredients, although “we still expect divisional profits for the year to fall modestly to £55m (€65m) in 2012,”​ added the market specialist.

Darren Shirley, a market analyst at Shore Capital said the firm is upgrading its 2011/12 EBIT forecast by 10% to £440m for the ABF sugar division, with “further upward potential seen as we move through the year.”​

Bread and meat ​

ABF reported that high promotional activity has affected margins at its bread brand Kingsmill, and management is said to be reviewing the baker's cost base, revealed Shirley in a note.

The ABF management also confirmed that H1 profits will be adversely impacted by the ongoing restructuring costs in Australian meats – where costs continue to be too high, though ‘progress’​ is reported in improving productivity.

“We believe the next 12 months are important for the prospects of meat in the ABF portfolio. With the commentary on Kingsmill margins, and the potential for further restructuring costs in both UK Bakery and Australia, we take £25m from our FY2011/12 Grocery EBIT to £225m​,” added Shirley.