Interactive Investor

ii view: diversity shines again at AB Foods

5th July 2021 15:14

Keith Bowman from interactive investor

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Primark sales recovering strongly and the dividend previously restarted. We assess prospects. 

Third-quarter trading update to 19 June

  • Retail revenue up 207% to £1.6 billion
  • Grocery revenue down 3% to £871 million
  • Overall group up revenue 47% to £3.65 billion
  • Net cash of £1.45 billion, up from £705 million in Q2

ii round-up:

Associated British Foods (LSE:ABF) operates across the five divisions of grocery, sugar, agriculture, ingredients, and retail. 

Its retail business Primark has over 390 stores across the UK and Ireland, much of Europe and parts of the USA. 

Brands for its food businesses include Mazzetti, Silver Spoon and Billington’s sugars, Jordans and Dorset cereals, Ryvita, Kingsmill, Patak’s, Blue Dragon and Mazola.

For a round-up of this latest trading update, please click here

ii view:

AB Foods aims to provide safe, nutritious, affordable food and clothing that is great value for money. It employs over 130,000 staff in more than 50 countries. Its Twinings and Ovaltine global hot beverage brands, situated within its grocery division, are enjoyed in over 100 countries. Its sugar business has the capacity to produce over four million tonnes of sugar and 600 million litres of ethanol each year.

The diversity of its divisions and geographical location help balance out volatility. Factors outside of management’s control include food commodity prices, currency fluctuations and now a global pandemic. 

For investors, ongoing pandemic uncertainty cannot be forgotten. Environmental concerns around Primark and the wider fashion industry’s high product turnover also warrant consideration. And an estimated price/earnings ratio of above both the three- and 10-year averages also suggests the shares are not obviously cheap.

But the company’s business diversity continues to shine through. A fall in grocery revenues during this latest quarter has been more than compensated for elsewhere. The dividend payment was previously restarted, and new overseas Primark stores continue to be opened, with 12 stores now in the USA. An approach to Environmental, Social, and Governance, or ESG issues is also being crafted. For now, and with Primark regaining its feet following pandemic closures, trading momentum at the company looks to remain favourable.  

Positives: 

  • Diversified business type and geographical footprint
  • Primark expanding store numbers overseas

Negatives:

  • Primark sales year-to-date are down by 11%
  • Ongoing pandemic uncertainty 

The average rating of stock market analysts:

Strong buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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