Investment Column: Ignore short-term ABF wobble, it's a buy

ABF

Our view: Keep buying

Share price: 1072p (-16p)

Associated British Foods (ABF) failed to win any favour with the market after yesterday's trading update: the FTSE 100 touched its highest level since late April, but the owner of the discount clothes retailer Primark was among the weakest of the blue chips as investors moved out on evidence of slowing sales growth at the chain.

The 204-store-strong retail business accounts for a third of the group's profits and has been a standout that has accounted for much of its resilience through the recent economic slump. As others wobbled (and some were wound up), Primark drew strength as demand remained strong for its cut-price offerings.

Yesterday, ABF said Primark's like-for-like sales are expected to grow by 6 per cent over the full-year period. This suggests that growth is slowing. In fact, it slipped from 7 per cent in the third quarter to 4 per cent in the fourth, at least according to analysts at Panmure Gordon. It is worth noting, however, that the figures are being compared against a very strong final quarter last year.

As for the flutter in the share price, well, ABF is up strongly since the beginning of the year. Coupled with the clouds on the high street – consumer sentiment, for instance, remains weak and VAT is set to go up in January – the Primark figures probably sparked a round of profit-taking from those who have followed the ABF train higher. However, we think there's more to come from ABF.

The fact is that another slowdown on the high street will only spur demand for Primark's offerings. We therefore expect growth to tick back up in due course, driving higher earnings for the group as consumers turn away from more expensive retailers. ABF's other businesses are also doing well, while its shares remain affordable. At 14.6 times prospective earnings for 2011, we're willing to bet that this horse will continue to gallop ahead of its peers. Keep buying.



PZ Cussons

Our view: Hold

Share price: 345p (+15.9p)

We've all got to wash, at least in theory. And that is good news for PZ Cussons, the maker of Imperial Leather soap and Carex hand wash.

Publishing its first-quarter update yesterday, the company said that trading was in line with expectations, helped by new product launches and strong demand in emerging markets. According to the oft-churned-out thesis, investments in defensive groups such as PZ Cussons should work well in times of woe as investors move to safer bets, and struggle more in the good times when the latter get the nerve to back something a little racier.

But as the economy has continued with a fragile recovery in recent months, so PZ Cussons' shares have rocketed, up by more than 50 per cent in the past year. The problem for investors that have not yet bought is that they may by now have missed the boat. With the shares trading on a 2010/11 multiple of 20.4 times forecast earnings, the stock is already fully valued by the market. Growth in the share price has steadied in recent months, suggesting that the stock is in for a period of water-treading.

There is plenty of growth in the group's emerging-markets businesses, particularly Nigeria, and we have no doubt that the stock is a solid one to hold. But with an uninspiring dividend yield of 2 per cent and a stable share price, we wouldn't be buying any more. So just hold for now.



Galleon Holdings

Our view: Speculative buy

Share price: 8.25p (+0.75p)

Despite its name, Galleon Holdings has no involvement in shipping. It is a media entertainment company that makes reality shows, drawing a return from selling them to emerging markets. One of its more prominent offerings is Super Soccer Star, made in conjunction with Chelsea FC, which has been taken to Brazil, Columbia, Malaysia and China. Yesterday's news saw the launch of Super Golf Star, a reality television show aiming to find the next... well, you get the picture.

Galleon is not limited to sports, as another format it launched last year is Super Fashion Stars, where lucky winners land a spot at this year's Fashion Fringe event. Broker Cenkos believes revenues will be lower in 2010 than last year, when sales were £27.1m, but should bounce back to £37.2m in 2011.

Galleon also has solid blue-chip institutional shareholders, a sign of quality for an AIM company. It had a tough start to the year, making a half-year loss of £700,000, but the broker expects profits at the full year, when the effects of an overhaul in China kick in. Trading on eight-times-forecast full-year earnings, it's hardly expensive and while not for the risk-averse, it's a buy for those of a mind to speculate.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...

Ashdown Group: Development Manager - Rickmansworth - £55k +15% bonus

£50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...

Recruitment Genius: Security Officer

£16500 per annum: Recruitment Genius: Applicants must hold a valid SIA Door Su...

Ashdown Group: Business Analyst - City, London

£50000 per annum: Ashdown Group: Business Analyst - Financial Services - The C...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss