Stock of the Week: Associated British Foods

VIDEO: Selling food and clothes exposes ABF to the twin risks of inflation and recession. Shares are undervalued according to Morningstar analysts

James Gard 27 April, 2023 | 10:00AM
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Welcome to Morningstar. Making its stock of the week debut is Associated British Foods, which has just put out interim results. Revenue was 21% higher than last year, but pre-tax profit was up just 1%. Shares fell by 5% after the results. Now ABF is an unusual company in that owns a food business, producing sugar, making ingredients and marketing household brands like Twinings and Kingsmill. But it also owns budget fashion chain Primark, which has been a very successful enterprise in the last decade and now has expansion plans for the southern United States. Primark sales rose 19% in the last 6 months but profits fell 16% as higher costs hit home.

Away from clothing, food inflation is having a huge impact on shoppers at the moment. Producers like ABF are naturally benefiting, as reflected in the 62% increase in operating profits at its ingredients division. But they’re also having to absorb higher energy and material costs. One way of doing this is, as we’ve seen with Coca-Cola etc, is to raise prices and hope the consumer is willing to accept this. Another way is to cut costs, and ABF has been doing both. Management priority in the second half, the company says, is to do some “inflation recovery” – in simple terms, that means price rises. Still, it expects inflation to be less volatile for the rest of this year. In terms of the consumer, ABF is concerned about spending as recession looms, and it expects Primark sales growth to be lower than in the first half. Still, offering low prices when budgets are tight has so far proved to be a successful strategy. Primark is now rolling out click and collect in the UK but our analysts think that the company will regret its slow move into digital retailing. ABF’s shares are up 20% this year but they are trading just below Morningstar’s fair value estimate of £22.50. For Morningstar, I’m James Gard.

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James Gard

James Gard  is senior editor for


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