Shares in international food, retail and ingredients group Associated British Foods are -3.3% this morning, extending the 2018’s -22% share price downtrend to levels last seen in June 2016. The company’s latest trading update painted a mixed picture for business outlook and while trading at its core Primark division was 5.5% higher at constant FX, the company remains vulnerable to global currency fluctuations due to earning two-thirds of its profits outside of the UK.

Though the Pound Sterling is -10% from 2018 highs, flattering USD-denominated revenues of internationally-exposed companies like AB Foods, the recent GBP strengthening is a worrying sign for the company. And with the Bank of England’s policymakers recently becoming more hawkish on monetary policy, we could see more Sterling strength until the end of the year. Add tumultuous Brexit negotiations (a major GBP mover) to the menu and the factor of uncertainty rises substantially.

None of this is anything that individual enterprises like AB Foods have any control over, naturally putting the company at the mercy of larger geopolitical forces. Hence the negative market reaction today.

Troubling macroeconomic conditions in the sugar market also continue to weigh on the company’s business, as increased product supply significantly depressed market prices. While AB Foods tried to put a positive spin on the issue, saying that lower Sugar revenues would be compensated by strong performance in its retail and grocery divisions, continued weakness in the segment is not a welcome sign. After all, just because retail is expected to do well (or will it, with all the UK’s recent high street woes?), doesn’t make the shortfall in Sugar any more disappointing.

Artjom Hatsaturjants, Research Analyst, 10 September 2018