Associated British Foods Plc

Associated British Foods Plc (LON: ABF) is an FTSE-100 listed diversified Company offering a variety of products and services.

The Company will announce annual results on 3 November 2020.

Investment Highlights - Associated British Foods Plc – Buy at GBX 1,835.50

• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Book Value multiples of the Associated British Foods Plc are currently lower as compared to the corresponding multiples of the Food & Tobacco industry. It reflects, shares are undervalued as compared to the industry.
• Over the course of 4 years (FY15 – FY19), the company’s Net Profit surged from GBP 524 million in FY15 to GBP 896 million in FY19, compounded at an annual growth rate (CAGR) of ~14.35 per cent.
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 32 level - oversold), which means the stock price could increase in the short term.

Key Risks

• The Company may face additional costs with any change in government policies and regulations related to Food Safety and Product Integrity.
• The Company is trading in an extremely volatile trading environment, due to covid-19 crisis, which could lead to an increased cost to operate the business.

Pre-Closing Trading Update (released on 7 September 2020)

• In the financial year 2020, the Company expects a strong increase in the trading performance from Agriculture, Ingredients, Grocery and Sugar businesses.
• The Company witnessed a higher performance from Primark and food businesses in the fourth quarter of FY2020.
• The Company’s lease interest and net interest expense stood in line with last year’s data, while the tax rate is expected to be around 30% for the period.
• The Company expects adjusted EPS to be lower than FY2019 data, due to lower profit from Primark.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company witnessed a strong trading performance in the Q4 FY2020 and expected strong aggregate adjusted operating profit for Agriculture, Ingredients, Grocery and Sugar businesses. The Company opened all Primark stores and expected adjusted operating profit from Primark business to be in between £300 million to £350 million. ABF has a strong balance sheet with decent liquidity to meet the challenges ahead. The recent orders placed by the Company are benefited from a weak US dollar. The stock made a 52-week low and high of GBX 1,554.00 and GBX 2,730.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Buy” recommendation on Associated British Foods Plc at the current price of GBX 1,835.50 (as on 13 October 2020, before the market close at 9:30 AM GMT+1), with lower double-digit upside potential based on 26.50x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

Boohoo Group Plc

Boohoo Group Plc (LON: BOO) is an FTSE-AIM listed online fashion retailing Company. The Company was founded in 2006 and has grown rapidly in the UK and International markets.

Investment Highlights - Boohoo Group Plc – Hold at GBX 330.00

• In the six months, the Company delivered a substantial return of ~ 24.95% and delivered higher returns compared to the benchmark Index (FTSE-AIM Index).
• Over the course of 4 years (FY16 – FY20), the company’s Net Profit surged from GBP 12.44 million in FY16 to GBP 72.88 million in FY20, compounded at an annual growth rate (CAGR) of ~55.58 per cent.
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 41 level), which means the stock price could increase in the short term.

Key Risks

• Due to the Covid-19 pandemic, the Company’s operational performance could be impacted due to disruptions in the supply chain.
• If the Company fails to develop an IT infrastructure, it could lead to cyber-attacks or frauds and could hamper the reputation.

Financial Highlights – H1 FY2021 (31 August 2020)

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2020, due to strong revenue growth across all brands and geographies, the revenue surged by 45%.
• The Company has healthy customer KPI’s, reflecting improvement in the share of wallet.
• The Company acquired 34% of a remaining minority shareholding in PrettyLittleThing and successfully acquired and integrated Warehouse and Oasis brands.
• The Company successfully placed £198 million to support future acquisitions.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown strong financial performance in the first half of the financial year 2021. Both the top-line and the bottom-line performance improved, with higher profitability margins. BOO has improved its full-year guidance for revenue and adjusted EBITDA, and started H2 FY2021 with a decent start, with solid momentum continue into September. The Company expects market uncertainty to remain in H2 FY2021 but has a strong balance sheet with higher net cash and healthy operating cash flow to tackle the uncertainties. The stock made a 52-week low and high of GBX 133.10 and GBX 433.50, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance for Boohoo Group Plc at the current price of GBX 330.00 (as on 13 October 2020, before the market close at 8:05 AM GMT+1) and will recommend fresh buying at the right time. 

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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