Stock Market Week: ABF's pounds 1.5bn cash mountain provides investors with food for thought

Garry Weston, avuncular chairman of the sprawling Associated British Foods giant, is unlikely to create much excitement with half- year profits today which will probably emerge at pounds 187m, up from pounds 181m.

Still, the stock market has discounted the bread to sweetener group's current profits performance. It is much more interested in its takeover appetite.

Last month the group sold its Irish supermarket interests to Tesco, collecting pounds 640m in the process. The deal lifted its cash pile to pounds 1.5bn, providing an acquisition war chest of at least pounds 3bn.

What is Mr Weston, who will soon be celebrating his 70th birthday, going to do with the cash hoard?

He is not, unlike some, going to be content to sit on the cash, merely accumulating interest. There is an outside possibility he will hand all or some of the money to shareholders through a special dividend or share buy-back. His decision to bring his results forward by two weeks could, some assume, point to a cash handout before Labour tightens the rules.

Mr Weston has run ABF for 30 years, developing what was a diverse food group worth around pounds 90m into a near-pounds 5bn business, taking in such names as Burton's biscuits, Sunblest bread, Silver Spoon sugar and Twinning teas.

It operates in difficult markets, often where retailers call the tune. But its muscle power is huge; it has 28 per cent of the bread and flour market and an entitlement to a 50 per cent sugar market quota.

Profits growth has been reasonable. Helped by the takeover of British Sugar, for pounds 800m, the pre-tax return has grown from pounds 267m in 1992 and could reach pounds 450m this year.

During his reign Mr Weston has not been deal-happy. He has not tossed shares around and ABF has remained firmly in Weston control with the family owning 53 per cent of the capital and Westons remaining involved in running the empire. Still, he has put through some intriguing deals, including selling the Fine Fare supermarket chain with impeccable timing.

Now, with retirement looming, he has the ammunition to make a spectacular farewell. There is even talk of a strike at the Tate & Lyle sugar group, currently valued at just over pounds 2bn. But he is likely to curb any such predatory instinct. After all, a T&L bid would hit insurmountable monopoly problems.

But sugar could be very much on Mr Weston's mind. The Polish sugar monopoly, about to be privatised, is said to be intriguing him and he must also be aware of the opportunities offered by Unilever's decision to sell National Starch and Quest, a food flavourings group. A US acquisition is another possibility.

On past form Mr Weston will not overpay. And he will bide his time.

Last week shares achieved a little progress, generally reflecting New York and ignoring the blood and thunder of the election campaign, although Labour twitchiness over the former nationalised groups caused some excitement.

Robin Griffiths, chartist at HSBC James Capel, feels the market's most quoted adage, sell in May and go away, could prove sound advice. He sees "no disaster on the horizon"; maybe a correction. But equities will move up again later on.

"The economy is strong, the institutions have funds to invest and the public is happy that house prices are rising again."

In the past, elections have often had a dramatic influence on shares. But with the result this time looking so predictable the one element - uncertainty - guaranteed to create volatility has been missing.

Should, of course, Labour's seemingly unassailable position begin to crumble then the swings and roundabouts of electioneering will produce a much more lively market reaction.

In what is a thin week for company profits ABF faces competition from only one other Footsie constituent, the recently created Anglo-American LucasVarity aerospace and vehicle components group. Its shares have been in reverse for much of the time since the pounds 3.2bn autumnal merger, falling from a 259p peak to 199.5p on Friday.

The weakness highlights a split over how shareholders should be rewarded. The group seemed at one time to favour dropping dividend payments for a rolling programme of share buy-backs. Such a move was supported by US shareholders, most of whom came in with Varity. They regard buybacks as more tax-efficient than dividends. But angry UK institutions let it be known they would oppose any move to scrap dividends because of tax credits.

LV, it is thought, hopes to solve its US/UK dilemma by adopting a formula which accommodates the opposing camps. One solution could be to cut the dividend, say to 4p a share, from the 7p made by the old Lucas operation, leaving around pounds 70m available for share-buying.

American Victor Rice, LV's chief executive, has identified pounds 100m of disposals and indicated yearly cost savings of pounds 120m.

The figures, due tomorrow, will not offer any surprises. In January LV said analysts' estimates of pounds 280m were a "realistic assessment" of its short term trading outlook.

On Thursday two of the market's laggards report. Food group Albert Fisher should produce interim profits moderately higher at pounds 19.5m. The shares, 43.5p, have underperformed as it displayed a vulnerability to outside shocks - the latest known upset is harsh winter weather devastating its cockle harvest. Ray Caley at stockbroker Hichens Harrison recently tipped them to treble in 18 months.

House of Fraser, the department stores chain, has almost been written off by the City. Since arriving in 1994 its shares have touched 227p; they now bump along at 164.5p.

John Richards at NatWest Securities expects year's profits a little higher at pounds 14.6m. But he points out a 1 per cent recovery in margins equates to pounds 8m of operating profits and HoF has rich property assets.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film
Arts and Entertainment
Brendan O'Carroll as Agnes Brown in the 2014 Mrs Brown's Boys Christmas special
tvCould Mrs Brown's Boys have taken lead for second year?
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
news
Sport
footballLive! Chelsea vs West Ham kicked off 10 Boxing Day matches, with Arsenal vs QPR closing the action
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
i100
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Arts and Entertainment
Madonna is not in Twitter's good books after describing her album leak as 'artistic rape and terrorism'
music14 more 'Rebel Heart' tracks leaked including Pharrell Williams collaboration
News
news
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
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

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

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
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all