The Investment Column: Primark fears mean Associated British Foods is only a hold

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Our view: Hold

Share price: 871p (-19p)

Associated British Foods has its fingers in several different pies. The group owns the likes of Twinings tea and clothing retailer Primark, and is the second biggest sugar producer in the world.

On the face of it, this is good news for investors: with big sugar operations in South Africa and China, the company is well diver-sified and has enough business away from the credit crunch to insulate it somewhat if the economy slips up further.

The interim numbers announ-ced yesterday also showed that the group had a good six months to the end of February: pre-tax profits were up to £282m, against £268m the year before. Analysts reported that the results were at the top end of expectations.

There is other good news too. Despite slightly disappointing numbers in the sugar arm, the amount produced in China will soon overtake that in the UK and with the EU abolishing import charges on sugar next year, ABF will be placed to benefit. Analysts also say that so far the company has been able to pass on higher input cost to customers.

However, it is not all good news. Primark reported what some watchers said were disappointing margin numbers, while ABN Amro described the start to the second half of the financial year as "soggy". Chief executive George Weston puts this down to disappointing Easter figures, due to poor weather, and says the full-year figures will be fine so long as the group can make attractive clothes that get the punters through the door.

Bettering last summer's sales figures should not be that tricky given that all retailers complained that the miserable weather wrecked the numbers.

Analysts at Investec say the share price "already prices in a lot of expectations". Given that, investors may wish to be cautious. But it is probably better to look at groups that can offset the effects of an economic downturn on one of its businesses with strong performances elsewhere. Hold.


Our view: Buy

Share price: 374p (-5.25p)

While it is pretty dangerous ground to give a wholehearted endorsement to a stock, investors would be pretty hard placed to find a reason not to buy Connaught. While maintaining social housing and offering compliance services might not be the sexiest industry in the world, for investors it is about as good as it gets.

The group generates its revenues from local government contracts to fix broken taps, windows and the like. Connaught aims to sign long-term contracts to guarantee business, typically over three to five years. In a bull market, Connaught might not get noticed, but with lots of companies exposed to the credit crisis, investors will find the group a haven.

On the compliance side of the business, the group is dependent on companies implementing health and safety regulations, which most do as a priority to avoid fines and legal action from injured employees.

The interim numbers announ-ced yesterday affirm the group's growth. Revenues were up 55 per cent, while operating profits increased by 84 per cent. Buyers might look at the share price and argue that the value of being a defensive stock is already priced in; the stock has grown consistently since the nadir of late 2006. Earnings per share are up 30 per cent and are expected to grow by the same amount through to 2010. Independent watchers at Altium say that the group's "excellent progress continues". Chief executive Mark Davies reckons that reputation risks remain his greatest worry. While this is a danger with any business, with Mr Davies's counterparts at other groups embroiled in credit woes, investors should not be unduly concerned. Buy.

Our view: Cautious hold

Share price: 113.5p (+8.25p)

If was paid by the number of people that visit its website, investors would be laughing all the way to the bank. Sadly, it is not.

The credit crunch means that providers of consumer loans are increasingly reluctant to lend; when they do, despite the Bank of England cutting interest rates, it tends to be on more costly terms. The effect of both trends is that fewer people click through to actually borrow and the company makes less in commission.

The money business makes up more than 50 per cent of the group's revenues, although fin-ance director Paul Doughty reckons the insurance division could well overtake money this year. By Mr Doughty's own admission, the credit crunch has "hindered growth", and the company is likely to find the immediate future difficult.

In its trading statement yesterday, said it was on track to meet analysts' targets. As well as facing trouble from the credit crunch, the group will also face a hike in advertising costs.

It is not all bad news, though. While most mortgage providers' revenues are about 40 per cent down, Numis watchers reckon "[revenue] is still reported as broadly flat [versus quarter one 2007]. Within the same division, they have seen a strong performance in credit cards and savings partially offsetting this". Cautious hold.