ABF’s ingredients division needs self-improvement: Analyst
ABF today released its business trading update in the wake of interim results set to be announced on April 24 that detailed a weak performance in its ingredients division, contrasted by strong growth in its sugar business.
James Targett, senior analyst, equity research at Berenberg Bank, said that ABF has struggled in ingredients, due to the nature of the market housing “more aggressive competitors.”
As a result, profitability in ABF’s ingredients division has been weaker, Targett told FoodNavigator.com.
Clive Black, head of research and retail analyst at Shore Capital, added, “over the last 18 months, profitability has more or less halved.”
“The ingredients business will need self-improvement… It has a lot of work to do, and in a very competitive environment,” Black said.
However, he added that within the next three years, “the company will manage to rebound.”
Graham Jones, executive director, equity research at Panmure Gordon & Co forecast a full-year earnings before interest, taxes and amortization (EBITA) of £50m (€59m) for the group’s ingredients division, down from £56m last year.
ABF’s ingredients division (ABFI) is comprised of several companies operating in the enzyme, emulsifier, yeast and grain-based ingredients sectors.
Riding the crest of the sugar wave
Amid difficulties in its ingredients business, ABF noted a strong performance in sugar.
“The primary drivers for growth in this sector have been EU sugar price and improvement in sugar yields,” Targett said.
The growth is “not as a result of specific management decisions or strategies,” he added.
Black said, “the performance of the sugar business, is to a considerable degree, reflecting the much higher profit margins in the industry.”
With ABF’s strong positioning and efficient operations in the British Isles and Spain, it was able to reap the benefits of favourable market conditions, he added.
Jones forecasted full-year EBITA in this division to reach £469m (around €555m) compared to £315m last year.
He detailed that within the UK there would be “substantial profits due to a much better crop, the absence of high processing costs, strong factory performances and high prices.”
High beet yields in Spain has also positively contributed, he noted.
Future focus
Despite difficulties in its ingredients division, ABF is “on track to deliver strong, full-year growth”, Jones said.
Targett agreed that the group should meet targets but noted that observers, following a very strong Q1, had anticipated stronger annual results.
In terms of future growth, “the bulk of future investments will be in the grocery and retail divisions,” he said.
Black agreed and said further bolt-on acquisitions in the grocery sector are likely but could also happen in the ingredients division.
Targett noted that Asia would “certainly be an avenue for future growth” for the group.
