Stock of the day 14/01/2015 – Associated British Foods PLC

Despite its name, Associated British Foods PLC has its finger in many non-food-related pies, one of which may provide an excellent start to the New Year as the company announces its trading statement for the 16 weeks to 3 January 2015 on Thursday.

The company produces £13.5 billion in revenue, and owns Primark, British Sugar, Twining and Ryvita, among others. It is the first of these brands that is the jewel in Associated British Foods’ crown, and may be the reason for celebration tomorrow. After a year of marginal growth in 2013, the company began 2014 at £24.55; by June the company had broken through the £30 mark only to lose its gains by mid-October at a low of £24.07, influenced by a slump felt across the FTSE. However, a November’s annual results announcement, which saw a 30% increase in earnings per share alongside 1% revenue growth and 2% operating profit growth saw shares recover, reaching a 2014 peak of £32.93.



The company then started 2015 at £31.83 and will be looking to improve on this with the potential announcement of a strong Christmas period. However, there are some worries for the company. In November’s annual results, sugar was shown to be a point of weakness for Associated British Foods, as the company blamed ‘declining sugar prices, lower volumes and adverse currency translation’ for the drop off in revenue. And despite Primark seeing a 16% growth in total sales to £4.95bn, and Twinings and Ovaltine also performing well, the company warned that 2015 profits may be flat.

With supermarkets slashing prices left, right and centre in order to undercut each other, it remains to be seen whether this will affect the margins of ABF’s most popular brands. Similarly, the Christmas period has so far proven mixed for the retail-sector, with brands like ASOS exceeding expectations, whilst clothing-sector leader Marks & Spencer continued to suffer. Primark will most likely be on the positive side of things, as it increased its worldwide presence to 294 stores in 2014, and has become one of the key features of the high street; however it won’t be completely immune to the issues that have been a burden elsewhere.

Analysts are mixed on the immediate future of Associated British Foods; Citigroup recently reiterated its ‘buy’ rating, whilst on average analysts have it at ‘hold’, from 3 sellers, 9 holders and 11 buyers, with a conservative target price of £30.27. Yet this earnings season are shown the markets are receptive to the slightest bit of good or bad news at the moment, so Associated British Foods’ shares may be in for some movement one way or another.