Associated British Foods zooms 7% as it declares double dividends

Highlights

  • Shares of Associated British Foods advanced more than 7% on Tuesday
  • It has declared final dividend of GBX 20.5 & special dividend of GBX 13.8
  • during FY20, company skipped dividends due to Covid-19 pandemic

 

Shares of Associated British Foods advanced more than 7% on Tuesday, 9 November, after the London-headquartered food processing and retailing giant declared double dividends while announcing the full year results for the year ended 18 September 2021.

The board of directors has announced a final dividend of GBX 20.5 and a special dividend, in addition to the final dividend payout, of GBX 13.8 per share.

Associated British Foods CEO on FY21 results.

Earlier, during the fiscal year 2020, the board skipped dividend payments due to the heightened uncertainty on the back of Covid-19 pandemic, stern restrictions affecting key business functions, effectively shrinking the cash flows for the group.

The “unknown duration and extent of Primark store closures” severely weighed on the earnings in the last financial year as the business environment remained highly uncertain about the full scale resumption of operations.

According to the ABF, the cash outflow of approximately £800 million during the three-month period between March and May of 2020, showed the scale of uncertainty in the first few months of lockdown with the healthcare authorities and the government of the UK exploring best possible scenarios for reopening the sectors.

The final and special dividend will be paid on 14 January 2022 to all the eligible shareholders on the register of members as on 17 December 2021, post closure of market hours. The board has fixed 16 December 2021 as the ex-dividend date for both the dividend payments.

The conclusive decision for the payment of final dividend is subject to the shareholder’s approval at the annual general meeting (AGM), scheduled to be held on 10 December 2021, while the special dividend doesn’t require a nod from shareholders, it will be paid upfront on the dividend payment date prescribed by the corporation.

The board of directors have also proposed an interim dividend of GBX 6.2, alongside the final dividend of GBX 20.5 per share, making the total dividend payout for the year to GBX 40.5.

Following the development, the stock of Associated British Foods rose as much as 7.34% to the intraday high of GBX 1,995 from the previous closing price of GBX 1,858.50 apiece. This is the highest share price for Associated British Foods in over two months, it last touched a peak of GBX 2,003 on 2 September 2021.

With the persistent uncertainty, inadequacy of staff, shortage of raw materials, faltering supply chain systems and rising input costs, the shares of Associated British Foods have declined more than 11% in the present calendar after including today’s appreciation. Barring today’s surge, the stock stands with a year-to-date (YTD) loss of nearly 18%.

Subsequent to the subdued uptake and lower-than-expected performance in the last few quarters, the stock is hovering well below its pre-Covid highs. In the meantime, the benchmark index FTSE 100 has staged a meaningful comeback, even as the challenges with regard to pandemic and Brexit continue to hurt the operations, returning close to 41% from the Covid bottoms.

With all the stores of Associated British Foods up and running now following the removal of pandemic restrictions and the social distancing mandates, the foods businesses are trading well, productively diminishing the uncertainty about future cash flows as against the extent of restrictions in the similar period a year earlier.

Given the evolving nature of virus strains, variants of concerns and WHO-designated variants under investigation and their respective sub-lineages, the business continues to operate with a certain level of uncertainty.

With the extensive roll-out of Covid-19 vaccines in the UK and other geographies, customers returning to stores in larger numbers, termination of pandemic restrictions, Associated British Foods expects Primark trading to improve continuously with the sales increasing by at least the estimated £2 billion, the proportion of sales lost due to store closures in the previous fiscal year.

Furthermore, the corporation intends to add more stores to key markets, Italy and Spain, effectively bolstering the selling space by next year that can help improve the operating margin, returning back to more than 10%.

The company expects the weaker value of US dollar against pound sterling can broadly counterbalance the collective impact of supply side troubles, labour rate inflation due to dearth of skilled workforce and high procurement cost of raw material. The group’s effective tax rate is expected to fall next year, inching closer to the pre-Covid rates, following the recovery in Primark’s profitability, Associated British Foods said in a regulatory filing.

Comment


Disclaimer