Demand for Associated British Foods (LSE: ABF) has exploded out of the blocks in Thursday trade, the stock gaining 8% following a bubbly trading update. Investors piled-in after the result of sterling’s weakness was revealed by the Primark operator. Associated British Foods advised that “we expect a bigger translation benefit in the final quarter with no material transactional effect at current rates.”
Associated British Foods added that “our outlook for this financial year has improved and we no longer expect a decline in adjusted earnings per share for the group for the full year.”
The retailer sourced around half of total profits from overseas last year. And with the pound continuing to plummet, the situation is looking rosier for Associated British Foods.
On top of this, while much of the retail sector could come under pressure from a cooling UK economy, footfall at Primark could ignite as shoppers flock towards low-price clothes.
On paper, Associated British Foods may appear expensive, the firm dealing on a forward P/E rating of 26.7 times. But I reckon hefty upgrades to earnings forecasts could be just around the corner.
Withdrawal symptoms
Property play Great Portland Estates (LSE: GPOR) also carried higher on Thursday, the firm 3% higher as I write. But this isn’t to say the jitters surrounding the commercial property sector won’t send the stock price sinking again.
Great Portland warned that “it is likely that the uncertainty created by the EU referendum result will have a negative impact on economic growth in London,” with firms deferring investment decisions as Britain negotiates its exit from the Union.
Consequently, Great Portland noted that “we can expect London’s commercial property markets to weaken during this period of uncertainty with the benefits of lower bond yields and weaker sterling offset by reduced rental growth prospects.”
With concerns looming over a protracted and unfavourable exit period, not to mention the possibility of a severe British recession, Great Portland could find itself under significant pressure in the months and years ahead. And I reckon a forward P/E rating of 43.2 times fails to account for these risks.
Sales sliding
Furniture flogger Dunelm Group (LSE: DNLM) completed the set with a 0.4% share value advance on Thursday.
The retailer advised of “volatile trading through [Q4] driven by changeable weather conditions and a general retail slowdown prior to the EU referendum.” Like-for-like sales at Dunelm dipped 0.6% during the 13 weeks to 2 July, it announced, continuing the steady decline witnessed in recent quarters.
And things could get a lot more difficult as shoppers put off purchases of non-essential goods. Indeed, Dunelm commented that “the current uncertainty makes the future trajectory of the economy and consumer confidence unclear.”
As such, I reckon cautious investors should sit on the sidelines for the time being, particularly as Dunelm’s forward P/E rating of 15.9 times can hardly be considered unmissable value.