ABF needs beefing up with a buy

The Investment Column

Interest in Associated British Foods was ignited last month when it unloaded its Irish supermarket chains on Tesco for pounds 630m.

The proceeds mean ABF is set to end the year with a cash mountain of some pounds 1.5bn, which it indicated could be geared up to give a war chest of twice that sum.

It is six years since executive chairman Garry Weston spent pounds 880m buying British Sugar, but he is clearly indicating that he is in the mood for another big acquisition.

Already big in businesses making use of basic agricultural products - wheat, sugar, edible oils, speciality fats and the like - Mr Weston says he wants something which adds value up the chain without getting too close to the cutthroat competition from supermarkets. He freely admits that the speciality chemicals businesses recently put up for sale by Unilever would fit the bill perfectly.

National Starch, for instance, a world leader in many of its areas of speciality chemicals, food ingredients, adhesives and resins would probably carry a price tag of around pounds 3bn.

National's profits, put at around pounds 250m for last year, would transform the group. But with bids having gone in last week, competition will be intense and Mr Weston has not made his reputation by overpaying.

Meanwhile, the trends in the existing business have been deeply uninspiring in the latest six months to March. Pre-tax profits crept ahead pounds 3m to pounds 201m, and even adding back the pounds 11m hit from currency, the underlying growth of 8 per cent was hardly exciting.

British Sugar took a pounds 6m hit from changes to the green pound, leaving profits pounds 3m lower at pounds 84m. Results from the animal feeds operation, which vies with Dalgety for leadership of the UK market, sank by a quarter, hammered by the collateral effects of mad cow disease on the British herd and animal feed imports made cheaper by the strong pound.

But perhaps the most disappointing performance from the core domestic businesses came from Allied Bakeries, where after two years of improvement, the bread wars have returned.

The price recovery of 1995 appeared to stall last year under the twin onslaught of a consolidated private sector and a renewed attack from supermarket own-label products. The latter, selling at 29p a loaf 12 months ago, are now down to 25p, where Mr Weston says neither he nor the retailer makes any money.

Even the harvest from ABF's cash pile has been poor, dropping from pounds 22m to pounds 28m after a disappointing performance from one of the group's four fund managers. They are now picking up less business from the group.

So with Henderson Crosthwaite looking for flat full-year profits of pounds 430m, after a pounds 30m or so currency hit, the shares at 508.5p, down 13p, are on a forward multiple of 16 and in need of that big deal to pep them up. Hold.

Bardon and Camas

fit like a glove

The excellent geographical fit between Bardon and Camas meant yesterday's merger to create Aggregate Industries was a deal waiting to happen. It makes abundant financial sense, attested to by the movements in the two quarrying companies' share prices. Bardon, which thanks to its unrelieved ACT is being used as the effective acquisition vehicle, rose 3p to 41.5p, with Camas 8.5p higher at 92.5p.

In the US, Camas is strong in the mid-West while Bardon's heartland is in the mid-Atlantic states and Massachussetts. At home, where analysts believe the market for aggregates is finally bottoming out Camas's strength in the South-west and Midlands is complemented by Bardon's Scottish and northern operations. Profitability in aggregates is determined by volume, pricing and costs, so rising demand, the prospect of last year's price rises being held or even bettered, and a reduction of pounds 10m in combined overheads means the deal should be handsomely earnings-enhancing.The collapse of the Government's road building programme, and the failure of the Private Finance Initiative to plug the gap, has dealt the industry a heavy blow, but what is not spent on new roads must inevitably go into maintenance. Environmental concerns, meaning new super quarries such as the two in Leicestershire the group will control will not get approval in the future, augur well for pricing.

In addition, analysts think the combined group has taken the pick of the two management teams to create a real force in the fast consolidating aggregates industry. On the basis of forecast profits of about pounds 32m for each company, the combined group is expected to make about pounds 65m in operating profit. Add in pounds 10m cost savings and factor in a tax rate of only about 28 per cent thanks to Bardon's unrelieved ACT and Aggregate should make around 4.3p of earnings per share this year. On the basis of Bardon's share price that means the enlarged group currently trades on a prospective price/earnings ratio of only 10 compared with a sector average multiple of about 12. With the prospect of one of the larger players stepping in to grab a share of the action before the marriage is consummated, that is an unwarranted discount. Either share is good value.

Full steam ahead

at Jarvis

All the surprises at Jarvis, the construction group turned facilities manager, have been on the positive side since it announced the acquisition of one of the privatised railway maintenance companies last year. As a result, the shares, up another 14p to 238.5p yesterday, have come close to quadrupling since May and are near their all-time high. The latest surge came on a "warning" from the company that latest results would "substantially exceed" analysts' forecasts.

The figures will be complicated by the decision to move to a March year- end, but they will still show that Jarvis continues to be on something of a roll. The maintenance business, now called Jarvis Facilities, is winning even more business from the railways than expected. That means redundancy charges, signalled at pounds 4.9m last year, are more likely to be pounds 2.6m for the latest 15-month period. Although a further charge of pounds 1m may be deferred into the current year, it is clear that the maintenance side has found work for more than 100 people it was otherwise expecting to lose, leaving a net loss of around 200 jobs. On top of the bread-and- butter work from Railtrack in its core northern area, originally worth pounds 353m up to 2001, the business is picking up work out of its region,

So Jarvis Facilities, acquired for a net investment of pounds 19m, could chip in operating profits before redundancies of pounds 14.7m in just over nine months with Jarvis. But the good news does not end there. The switch in "old" Jarvis from straightforward contracting to more turnkey work has seen it pick up business like building the Colfox School in Dorset, which will bring together the construction business, the training arm and the facilities management side in a deal that could be worth pounds 100m over 30 years. A pounds 3m car park for the Medway Health Trust is another example. These sort of projects should mean fatter margins and a steadier income stream. Together, yesterday's news should be good for another pounds 4.5m on profits, leaving an annualised figure of pounds 14.6m for last year, rising to pounds 27m. So on a forward p/e of 17, falling to 11, the shares are reasonable value.

Start your day with The Independent, sign up for daily news emails
Barn owls are among species that could be affected
charity appeal
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricketEoin Morgan reportedly to take over ODI captaincy
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas