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Primark owner AB Foods' confident outlook boosts shares

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By Reuters
Primark owner AB Foods' confident outlook boosts shares
The Primark logo can be seen on windows at Primark's new Spanish flagship store in Madrid, Spain, October 15, 2015. REUTERS/Andrea Comas/Files   -   Copyright  Andrea Comas(Reuters)

LONDON (Reuters) – Associated British Foods <ABF.L> forecast earnings growth in its new financial year on Tuesday, with anticipated progress in its sugar and grocery businesses supplementing the further expansion of its Primark fashion chain.

The company’s stock was up 5% at 0907 GMT to take gains for the year to 16%, after the group, which also owns major agriculture and ingredients arms, beat its 2018-2019 forecasts with a 2% rise in earnings and 3% increase in its dividend.

Analysts at Shore Capital said they expected to upgrade their forecasts.

The main swing factor in the AB Food’s performance in the 2019-2020 year is likely to be sugar. Profit from the division slumped 79% to £26 million in 2018-19. However, it is set to benefit materially from increases in European Union sugar prices and from further cost reductions.

“We had forecast the sugar decline, it’s now behind us, and the group still made progress despite it,” Chief Executive George Weston told Reuters.

“Prices in Europe are significantly ahead of where they were a year ago,” he said.

The group expects another year of strong profit growth in grocery, with the Twinings Ovaltine brand in particular benefiting from a more efficient tea supply chain.

Primark, which generates about half of group revenue and profit, plans to add a net 1 million square feet of additional selling space in the new year. A small reduction in margin is expected, reflecting currency moves.

Weston said he was pleased with Primark’s trading so far in the 2019-20 year, highlighting the UK performance as “solid” in a tough overall market.

“We’re not completely immune from it, but we think we are winning,” he said, adding: “We’re well set up for Christmas.”

AB Foods posted adjusted earnings per share of 137.5 pence in the year to Sept. 14, exceeding guidance for a performance in line with 2017-18’s 134.9 pence. Revenue rose 2% to £15.8 billion and adjusted pretax profit was up 2% to £1.41 billion.

(Reporting by James Davey; editing by Kate Holton and Kirsten Donovan)