Interactive Investor

ii view: why there's optimism at AB Foods

21st March 2022 11:06

Keith Bowman from interactive investor

There are positives in it's latest set of results, but AB Foods' share price is bouncing around near multi-year lows. Buy, sell, or hold?

Trading update for 24 weeks to 5 March

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 more than 400 stores across the UK and Ireland, much of Europe and parts of the USA. 

Brands for its food businesses include Twinings, Ovaltine, 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:

Started in 1935, AB Foods is today a multinational food processing and retailing business headquartered in London. It employs over 125,000 staff in more than 50 countries. Its retail division Primark operates across 12 markets including the USA. Geographically, the UK generates its biggest slug of sales at around 36%. Europe and Africa account for just under 30%, with the rest of the world making up the balance. 

Management initiatives include expanding its Primark store numbers to around 530 outlets come 2026. Launching a new, improved customer-facing website in the UK and simplifying its in-store UK retail management structure. 

For investors, inflationary cost pressures are being battled, and the lack of a significant online presence over the course of the pandemic contrasts with that of clothing rival Next (LSE:NXT). Pandemic outlook uncertainty cannot be completely dismissed, while economic uncertainty and geopolitical tensions also need to be considered. 

On the upside, a return to pre-pandemic sales and operating profit performance is expected over this latest half-year period. Expansion of the retailing business is being pursued, while an estimated future dividend yield of over 2.5% is not derisory in an environment of low interest rates. In all, the company's diversity of businesses continues to show its worth and analysts currently estimating a fair value share price of £23. Despite the price currently trading close to multi-year lows, grounds for long-term optimism persist.

Positives: 

  • Diversified business type and geographical footprint
  • Targeting 530 Primark stores from just over 400

Negatives:

  • Pandemic and economic outlook uncertainty
  • Many factors outside of its control like commodity prices and currency moves 

The average rating of stock market analysts:

Buy

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