One FTSE 100 Listed Stock Under Investors’ Radar: Associated British Foods

Associated British Foods PLC

Associated British Foods PLC (LON: ABF) is an FTSE 100 listed Company, which is engaged in the food processing and retailing business.

On 26 April 2022, the Company will release interim results for the 24 weeks period to 5 March 2022.

Investment Rationale – BUY at GBX 1,699.50

• Strong Financial Ratios: On the liquidity front, the current ratio of ABF remained ahead of the industry median during FY21. From a leverage standpoint, the debt-to-equity ratio of ABF was lower than the respective industry median during FY21.
• Solid Guidance for Primark Sales: The Company expects H1 FY22 Primark sales to be over 60% ahead of last year.
• Diversification of Funding Sources: The successful launch of the public bond of £400 million at 2.5% will diversify the funding sources and extend the duration of borrowings.
• Technical Indicator: From a technical standpoint, the stock price is trading around the lower Bollinger Band, illustrating a bullish price momentum.

Risk Assessments

• Geopolitical Risk: The mounting concern over the Russian invasion in Ukraine may adversely impact the wheat imports in European markets.
• Emerging Risk: The escalating cost of energy, logistics, and commodities can hurt Grocery, Sugar, Ingredients, and Agriculture businesses.

H1 FY22 Pre-Close Trading Update (for the 24 weeks to 5 March 2022, as on 28 February 2022)

• Grocery Business: For the Grocery business division, the Company expects decent growth of around 2% in the revenue during H1 FY22.
• Top-Line Business: The revenue from continuing operations for the 16 weeks ended 8 January 2022 remained around 16% higher at actual exchange rates when compared with the 16 weeks ended 2 January 2021.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

Conclusion

The Company had expected significant year-on-year growth in sales and adjusted operating profit during H1 FY22. Furthermore, the sales and adjusted operating profit were also expected to remain ahead of pre-Covid-19 levels.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Based on the strong balance sheet, consistent dividend payments, 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 market price of GBX 1,699.50 (as on 25 March 2022 at 10:45 AM GMT), with lower double-digit upside potential based on 14.79x Price/NTM Earnings (approx.) on FY22E Earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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