Primark achieved volume and value share improvements on a two-year basis during the seven-week period following reopening in the overall U.K. clothing market, which includes online sales, a reflection of its excellent brand and execution, despite not offering a transactional online channel.
We increase our fair value estimate to GBX 2,560 per share from GBX 2,350 to account for the time value of money and stronger sales growth rebound in Primark as reopening gradually resumes. Our discounted cash flow-derived fair value estimate is slightly lower than our sum-of-the-parts valuation at GBX 2,620 per share, with Primark accounting or about 50% of the group’s valuation. Although uncertainty around restrictions has been significantly reduced in recent weeks, the stock already trades in 3-star territory, and we advise investors to wait for a better entry point.
Company Profile
Associated British Foods is a diversified international retail, food, and ingredients group with 130,000 employees and operations in 50 countries across Europe, southern Africa, the Americas, Asia, and Australia. The group sells branded grocery products, grows and processes sugar, supplies farmers with crop input and animal feed, and runs the popular Primark clothing retail chain. It also supplies ingredients like bakers’ yeast, enzymes, lipids, and cereal specialties. Some 40% of sales are in the U.K., and Primark generates more than half of the firm’s operating profit.
(Source: Morningstar)
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