Associated British Foods (LON:ABF) said sales for the first half rose 20% but warned operating profit would be flat over the full year as higher costs eat into margins.

Primark drove AB Foods higher revenue as sales jumped to £4.2bn, 19% above the same period a year prior at actual exchange rates. AB Foods said they expect Primark’s operating profit to be ahead of prior expectations for the full year as sales increase and costs rise less than expected.

However, rising commodity input prices for the sugar and groceries business are set to scupper any meaningful growth in their foods operating profit. Higher costs in their sugar business due to a poor UK beet crop are to blame for a predicted flat line in profits.

AB Foods shares were 1.4% at the time of writing.

“ABF expects group sales to jump up as consumer spending holds up better than anticipated. Primark’s had a big hand in underpinning the group’s increased sales performance, expecting to see double-digit growth as its customers find refuge from cost-of-living pressures in the value retail store,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

“Despite being well positioned to deal with consumers’ shrinking budgets, ABF is not without its challenges, the main one being significant cost inflation. The group’s trying to offset this through price increases, but this risks alienating the value-chain’s core customer base. This means that cost increases haven’t been fully passed onto customers so far, resulting in Primark’s margins falling from 11.7% to around 8%.”

In the six months to the end of December 2022 were good for the DX (Group) (LON:DX.).

The company, which is a market leader in the delivery of mail, parcels, pallets and freight of irregular dimension and weight, enjoyed strong trading, some 15% ahead of the previous year.

It reported that customer supply chain issues had normalised, labour market pressures had eased, and costs had been managed effectively.

Accordingly the group’s Management remains confident that the Group is well-positioned to meet its expectations for the financial year despite the economic headwinds, for the second half of the year. 

The Business

First established in 1975 as a Document Exchange service to the legal sector, DX now provides one of the widest ranges of overnight delivery services in the market, as well as courier and logistics services.

DX provides a wide range of specialist delivery services to both business and residential addresses across the UK and Ireland.

The group operates through two divisions, DX Freight and DX Express.

The company’s goal is to deliver exactly to its customers’ requirements, whether via a next day, scheduled or tracked, secure service, and provide assurance through proof of delivery.

Items that DX transports range from confidential documents and valuable packages to large, awkward-to-handle freight, unsuitable for automated conveyor.

The Interim Results

The six months to end December saw the group report a 15% lift in revenues to £231.3m (£202.0m), adjusted pre-tax profits were 96% ahead at £9.2m (£4.7m), earnings per share were 160% better at 1.3p (0.5p), while the group announced a 0.5p (nil) dividend.

CEO Paul Ibbetson stated that:

“The Group performed strongly, with both divisions contributing higher revenue and expanded margins. Trading was helped by the easing of customer supply chain and labour market pressures.

We are also pleased to return to the dividend list after six years. It reflects the success of our turnaround and growth plans, which commenced in 2018, as well as our confidence in the Group’s future prospects.

We are now in the second year of our £20-£25 million capital investment plan, which supports our growth ambitions and will help to drive further operational improvements and margin gains.

Trading to date in the second half, traditionally our stronger period, is in line with expectations, and we believe that despite economic headwinds, the Group is well-placed to meet its targets for the financial year.”

An ‘Ugly’ delivery?

A couple of weeks ago the company was featured in an article in The Sunday Times entitled ‘The driver, the logistics firm and the ‘espionage’ referring to certain of its employees attempting to gain certain trade information.

It received a claim from Tuffnell Parcels Express in relation to confidential competitor details being obtained by DX in the past. The group intends to defend its position robustly and will respond to the claim in due course.

Analyst Opinion – Target Prices in 50p to 57p range

Guy Hewett at the group’s NOMAD and Joint Broker finnCap, is very positive about its prospects, putting a 57p Target Price on the shares.

For the year to end June this year he is going for revenues to have increased to £465.1m (£428.2m), with adjusted pre-tax profits of £25.4m (£20.6m), earnings of 3.7p (2.8p) and looking to pay a 1.5p (nil) per share dividend.

For 2024 he sees £484.1m sales, £29.9m profits, 4.2p earnings and a 1.7p dividend.

Over at the other Joint Broker, Liberum Capital, their analyst Gerald Khoo rates the shares as a Buy with a 50p Target Price.

His estimates for 2023 are £473m sales, £26.7m profits, 3.4p earnings and a 1.5p dividend.

For the coming year he looks for £496m revenues, £32.5m pre-tax profits, with 3.8p earnings and a 1.7p dividend per share.

Conclusion – at least a 25% upside in 2023

The group has a growing pipeline of new business and is expanding its depot network, which in turn should drive productivity improvements and importantly build up its customer service.

As long as the Tufnells situation does not get too messy, I continue to consider that this group’s shares are significantly undervalued at the current 28p.

I would reckon that there is at least a 25% upside in 2023.

The FTSE 100 reflected the broad indecision in markets on Friday in a choppy session that saw early gains disappear, but losses held within a FTSE 100 range beginning to form around 8,020-7,850.

The FTSE 100 was trading at 7,882 at the time of writing.

Concerns around interest rates have prevented global equities breaking to the upside, but underlying strength in economies has provided support for stocks.

Better than expected UK consumer confidence data released on Friday was the latest data point to buoy markets.

“The UK economy recently narrowly avoided recession and the narrative has shifted to one of peak inflation, and an end in sight to interest rate hikes. Consumers with more confidence tend to be more willing to part with cash, which could feed through to better-than-expected retail performance,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown

However, later in the session, US personal consumption data highlighted the current ‘good news is bad news’ nature of economic data. A much better than expected growth of 1.8% vs 1.3% for US personal spending in January sent equities into a tail spin as investors braced for higher interest rates for longer.

IAG

IAG demonstrated consumer’s greater propensity to spend with a strong recovery in 2022 revenues. IAG revenue rose to €23bn in 2022 – a substantial improvement on 2021’s meagre €8.3bn.

However, IAG shares dipped slightly on Friday as the airliner also revealed staggering net debt that has hardly moved since the end of 2021.

Tekcapital’s Guident has once more demonstrated their prowess in autonomous vehicle safety technology with the inking of an agreement with NOVELSAT to bolster the connectivity of their remote monitoring systems.

NOVELSAT will provide Guident with access to low-earth space satellites that will facilitate always-on connectivity between autonomous vehicles and Guident’s remote safety centres. 

“NOVELSAT is excited to partner with Guident to bring the highest level of safety to autonomous systems,” said Gary Drutin, CEO of NOVELSAT.

“Our space-based connectivity solutions will ensure the always-on, high-capacity connectivity that is essential for the safe deployment and operation of autonomous vehicles and devices in diverse environments. We believe that this partnership will enable us to lead the way in providing innovative connectivity solutions that meet the needs of the autonomous systems industry.”

Guident’s autonomous vehicle safety technology

Guident’s technology is at the forefront of the autonomous vehicle safety requirement to have access to human intervention.

Tekcapital’s portfolio company has already validated their technology on numerous occasions by securing contracts with the Boca Raton technology campus, and very recently, Auve Technology.

Guident’s partnerships have made autonomous shuttles in closed circuits a reality by providing the necessary remote monitoring networks.

Today’s announced partnership with Novelsat will further strengthen Guident’s offering and possibly open the door to further deals in the future.

“Leveraging cross-network connectivity, our human-in-the-loop AI technologies will enable always-on remote monitoring control of autonomous vehicles and devices, thereby resolving unforeseen situations and providing unparalleled safety and reliability in various applications,” said Harald Braun, Chairman and CEO of Guident.

“We believe the integration of these technologies is a game-changer, and we are excited to be at the forefront by providing low earth orbit satellite monitoring redundance in addition to 5G and GPS monitoring of autonomous vehicles.”

Tekcapital portfolio

With a number of Tekcapital’s portfolio companies already listed in the case of Lucyd and Belluscura, Guident may prove to be something of future blockbuster as it subtly establishes a significant footprint in the autonomous vehicle safety market.

Autonomous vehicle safety is a fast moving industry and Guident has again proved it is one step ahead of competitors.

Tekcapital shares were trading positively at the time of writing.

IAG shares hit a patch of turbulence on Friday after the airline operator released full year results for 2022 which confirmed robust revenue recovery from the pandemic.

Revenue for 2022 was €23bn, up from €8bn in 2021, as pent up demand from the pandemic was unleashed on the travel sector.

After recording a near €3bn operating loss in 2021, the British Airways owner swung to a €1.2bn operating profit.

“British Airways owner, IAG has swung to an operating profit of €1.2bn, compared to billions in losses last year. The impressive regaining of altitude comes as a direct result of Covid restrictions easing and a return to more normal travel,” said

“As a long-haul specialist, IAG has been one of the last names in the sector to gain momentum following the pandemic. Of course, aviation has flown straight into another hurdle in the form of a cost-of-living crisis. So far it seems pent up demand for travel is keeping things propped up, but there is a limit to how long this can continue. It’s heartening to see IAG’s capacity ramping back up to pre-pandemic levels – getting to this point didn’t come without its well-publicised challenges.”

Despite the return to profit, IAG shares were 4% lower at the time of writing on Friday. Analysts at AJ Bell highlighted IAG’s €10.3bn net debt as a potential source of strive for investors.

“As a legacy of Covid, debt is highly elevated. This could make the market uncomfortable, particularly if there is any indication it is preventing IAG from making necessary investments in its business,” said Russ Mould, investment director at AJ Bell.

IAG also announced the €400m acquisition of the remaining 80% of Air Europa on Friday. Although €100m of the consideration will be paid in shares, investors may be a little perturbed IAG are spending cash on acquisitions, rather than paying down debt.