Associated British Foods PLC

The UK based Associated British Foods plc (ABF) is one of the leading diversified food, ingredients and retail groups. The group’s major businesses include Sugar, Ingredients, Grocery, Agriculture and Retail. ABF caters its products primarily to industries including Agriculture, Pharmaceutical, Retail and Food.

Trading Update (as on 4^th July 2019)
On constant currency basis, the company’s revenue from continuing businesses for the 40 weeks ended June 22, 2019, was up by 3 per cent as compared with the corresponding period of the last year, while on actual exchange rates (AER), increased by 2 per cent. On a constant currency and AER basis, the sales from continuing business (excluding sugar division) surged by 4 per cent as compared to the same period previous year data.

Financial Highlights (H1 FY2019, £ million)

(Source: Interim Report, Company Website)

On a constant currency basis, the group revenue surged by 2 per cent to £7,532 million as compared with the corresponding period of the last year data. Adjusted operating profit declined by 2 per cent to £639 million against the last year same period data.

On AER basis, the company’s reported revenue surged by 1 per cent as compared to £7,422 million in H1 FY18. Adjusted operating profit decreased by 1 per cent against the corresponding period of the last year, due to the changes in sterling exchange rate. Adjusted Profit before tax stood at £627 million and in line against the previous year same period data. Adjusted earnings per share (EPS) were in line with the previous year at 61.1 pence. The board declared an interim dividend per share of 12.05 pence, an increase of 3 per cent as compared to 11.70 pence in H1 FY18. Gross investment and net cash stood at £433 million and £386 million respectively.

Share Price Performance

Daily Chart as at July-04-19, before the market closed (Source: Thomson Reuters)

On 4th July 2019, at the time of writing (before the market close, GMT 11:10 AM), ABF shares were trading at GBX 2,459 and increased by 0.614% against the previous day closing price. Stock's 52 weeks High and Low is GBX 2,660/GBX 2,011. The company’s stock beta stood at 1.02, reflecting the same directional movement of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
In H1 FY2019, the company reported decent profit growth in Primark and in Grocery division. The company expect that the full year profit will decrease in sugar division and it was reflected in the first half. The full year 2019 prospects for the company was unchanged, with adjusted earnings per share projected to be in line with the previous year.

Going forward, in April there was one potential positive catalyst for the share, Primark Birmingham flagship store opened on April 10 - this 160k square feet store will include the first Disney Cafe outside of Disney's resorts and cruise ships and Primark's biggest beauty studio to date.

The company had shown growth in revenue as compared with the previous year. The current macroeconomic factors are in favour of the company. Based on the decent growth prospects of the company and the valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 2,444 (as on 3^rd July 2019) with single-digit upside potential based on 19.34x NTM Price to Earnings (approx.) on FY19E earnings per share (approx.).
 
* All estimates have been taken from Thomson Reuters.
*The “Buy” recommendation is also valid for the current price as covered in the report (as on July-04-19).

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