Associated British Foods PLC

London-based Associated British Foods Plc (LON: ABF) is a diversified group, offering a wide range of products and services which are marketed through many widely known brands and enjoy a high degree of autonomy, with operations in 52 countries across Europe, Southern Africa, the Americas, Asia and Australia. The group has five reporting segments being Agriculture, Sugar, Ingredients, Retail and Grocery.

On 21^st April 2020, the company will announce its interim results for the 24 weeks to 29 February 2020.

Pre-Close Period Trading Update (as on 24^th February 2020)
The company announced the trading update before entering the close period for its first half of 2020 (for the 24 weeks to 29 February 2020). The company has implemented IFRS 16 accounting standard from the current financial year 2020, and the upcoming interim results will be the first to be stated under this IFRS 16. In the first half of 2020, the cash outflow and capital expenditure will be in line with the same period of the previous year. The net cash before IFRS 16 lease liabilities for the first half of 2020 expected to be around £800 million as compared with the corresponding period of the last year (H1 FY19: £386 million). In the first half of 2020, the revenue from grocery business is expected to be in line with the previous year at constant currency, with the first contribution from Anthony's Goods in the United States offset by lower sales at Allied Bakeries and higher sales at George Weston Foods in Australia. In Grocery division, the margin and operating profit will be ahead, with reduced operating losses at Allied Bakeries, and benefiting from a higher margin in ACH. Twining's revenues were ahead of the previous year and margin at Twinings Ovaltine improved. In the current period, AB World Foods attained good sales growth. For the first half of 2020, the revenue from AB sugar division is projected to be ahead of last year. In Sugar division, the operating profit for the full year 2020 stays in line with the anticipations. In the first half of 2020, the revenue at AB Agri will be ahead of the previous year, while the company anticipate operating profit to be broadly in line with the previous year. The revenue at Ingredients will be ahead of the previous year in the first half of 2020, while adjusted operating profit will decrease in the first half of 2020. On a constant currency basis, the sales at Primark are projected to be 4.2 per cent, ahead of last year, while on an actual exchange rates basis, it increased by 2.5%. On a reported basis, the operating profit in the retail division will be ahead of last year.

Share Price Performance
 
Daily Chart as at February-25-20, before the market closed (Source: Thomson Reuters)

Associated British Foods plc shares were trading at GBX 2,547 at the time of writing before the market close (at 8:15 AM GMT) on 25th February 2020 and were up by 0.16% versus the previous day closing price. Stock 52 weeks High and Low are GBX 2,730.00/GBX 2,078.81.  The group’s stock is reflecting roughly the same volatility as against the benchmark index, based on the company’s beta of 0.99. The shares of the company have delivered a positive return of 9.94 per cent in the last year.

From the technical standpoint, its shares were trading well above its short-term as well as long-term support level of 200-day simple moving average prices, which reflects an uptrend in the stock and carrying potential to move up further as 14-Relative Strength Index of the stock also hovering in the oversold zone, which is strengthening the upside move.

Conclusion
For the half-year of 2020, the company anticipate sales growth and also expect adjusted operating profit to be aheadof the previous year on both reported and lease-adjusted basis. On a lease-adjusted basis, the group anticipate adjusted earnings per share (EPS) to be ahead of the prior year. The dilutive impact of the implementation of IFRS 16 on earnings will result in a small decrease in adjusted EPS in the first half of 2020 at a reported basis.

Led by a second-half weighting of the AB Sugar profit recovery and profit growth for Primark, the company anticipate robust growth in adjusted operating profit in H2 FY20. As a result, the outlook for the financial year 2020 is unchanged with progress anticipated, on both lease-adjusted and reported basis in adjusted EPS.

Also, the group's business model is not very sensitive to the Brexit related issues and its food production aligns with the end market for the product. But it was also impacted by an outbreak of the Covid-19 coronavirus in January 2020. In the medium to long term outlook, the company maintains its positive view for the shareholders.

Based on the above rationale, we have given a “Hold” recommendation at the current price of GBX 2,540 (as on 25^th February 2020, before the market close at 8:20 AM GMT).
 

Bunzl PLC

Bunzl Plc (LON: BNZL) is a specialist international distribution company. The operations of the group are differentiated in four geographical segments, namely North America, Rest of the World, Continental Europe, and the U.K. & Ireland.

Recent News
On 24^th February 2020, the company announced two further acquisitions in Denmark and Brazil. In Denmark, the company has entered into an agreement to purchase ICM. In Brazil, the company has acquired Medcorp at the end of January.

Financial Highlights (for the year ended 31 December 2019, £million)

(Source: Final Results, Company Fillings, LSE)

The company’s revenue for the financial year 2019 increased by 1% at constant exchange rates and also increased by 2.7% at actual exchange rates.On a consistent IAS 17 basis, the operating margin surged from 6.7% to 6.8% at constant exchange rates in FY19. On a consistent IAS 17 basis,the adjusted profit before income tax rose by 2.4 per cent at constant exchange rates, while it also surged by 3.6 per cent at actual exchange rates. During the year 2019, the company has spent 124 million pounds in the acquisition, with four acquisitions announced in recent months and a promising pipeline. Return on average operating capital for the current period was 48.4%, with return on invested capital stood at 14.6% on an IAS 17 basis. The group has continued robust cash conversion of 101% and free cashflow increase of 10%. 27-year track record of dividend per share increase continues with a 2.2 per cent growth in the dividend per share for the year 2019.

Share Price Performance

Daily Chart as at February-25-20, before the market closed (Source: Thomson Reuters)

Bunzl plc shares were trading at GBX 2,052 at the time of writing before the market close (at 8:20 AM GMT) on 25th February 2020 and were up by 2.55% versus the previous day closing price. Stock 52 weeks High and Low are GBX 2,554.60/GBX 1,891.50.  The group’s stock is reflecting the lower volatility as against the benchmark index based on the company’s beta of 0.78. The shares of the company have delivered a positive return of 3.36 per cent in the last week.

From the technical standpoint, its shares were trading well above its short-term as well as long-term support level of 20-day and 50-day simple moving average prices, which reflects an uptrend in the stock.

Conclusion
The company has also shown continued robust cash conversion and free cash flow growth.Looking forward, although the company continue to see challenging trading conditions in several markets, the robust competitive position, diversified and resilient businesses and ability to consolidate the fragmented markets will lead to enhanced growth at constant exchange rates mainly driven by the impact of the good level of current acquisition activity. The group is making acquisitions which is an essential step for the growth of the business.

The company’s total revenue has grown from GBP 6,489.7 million in FY2015 to GBP 9,326.7 million in FY2019, giving approximately 9.49 per cent growth on a CAGR basis.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 2,001 (as on 24^th February 2020).

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.