Boohoo and Primark show retail isn't dead and AB Dynamics motors on

“Having last night hit a six-month high, the FTSE 100 took a small step back on Wednesday, falling 0.3% to 7,501. Key detractors were mining, oil and insurance companies.

“Asian shares were also weak amid chatter that investors had started to worry about the Chinese government slowing the pace of monetary and fiscal support following a stronger-than-expected first quarter for economic growth,” says Russ Mould, Investment Director at AJ Bell.

RETAIL: Boohoo and Primark (Associated British Foods)

“The retail sector is still alive and well according to statements from various companies this year. And today this theme is echoed by two of the key clothing sellers in the sector.

“Boohoo’s full year results show revenue growth of nearly 50%. That’s a nice backdrop for new CEO John Lyttle to start implementing his own take on how to increase the company’s size and scale.

“Interestingly its PrettyLittleThing brand continues to be the faster growth side of the business, so much so that its revenue contribution to the group is fast approaching the same as the core BooHoo brand. This rapid earnings growth implies Boohoo will have to pay a decent amount of money to buy the remaining 34% of PLT it doesn’t already own.

“It can exercise an option to buy the final stake in PLT on 28 February 2022 at market value, to be determined by one of the major accounting firms. It bought the original 66% stake for £3.3 million in December 2016 when PLT was making £17 million revenue. Sales have now rocketed to £374.4 million. It would be fair to suggest it will have to pay at least £400 million to buy the final slug of PLT.

“Meanwhile, Associated British Foods said Primark’s profits grew by 25% in its first-half period, thanks to a greater amount of selling space and improved margins. That’s quite impressive considering that revenue only grew by 4.4%.

“Its challenge is to keep flexing its muscles by buying material at the best price, keeping tight stock management and avoiding discounts to protect margins.

“It can forward buy foreign currency but only for a short period so a strengthening US dollar will hurt operating margins in the second half of the year. But the one factor completely out of its control is the weather which can have a major influence on consumer appetite to go to the shops in the first place and the type of garments they want to buy.”

AB Dynamics

“Car testing specialist AB Dynamics is one of the big success stories in the small cap arena in the last few years and a genuine good news story in the British industrial sector.

“After another significant gear shift in the shares on today’s first half results, they now trade at well in excess of 20 times the 86p issue price from a May 2013 IPO.

“Demand for the company’s services has benefited from an automotive industry in a state of flux with its growing portfolio of unique testing products critical to developing and launching increasingly sophisticated vehicles.

“It also has strong existing relationships with the top global car manufacturers and these inherent strengths are reflected in this latest set of numbers.

“Given this is an outfit which has been motoring ahead for several years already, to nearly double pre-tax profit is some achievement.

“And the business looks set to continue its momentum under new chief executive James Routh, appointed in October, after a strong start to the second half and with a healthy-looking order book.

“Encouragingly this is very much driven by organic growth, achieved incrementally through investment in its capacity, product development, marketing, geographic expansion and people rather than through the shortcut of a big acquisition or two.”

These articles are for information purposes only and are not a personal recommendation or advice.