The Investment Column: Associated British Foods may leave investors with sour taste
Tuesday 09 November 1999
Price deflation and tough deals with the major supermarket multiples have put the squeeze on margins. And though ABF's push into food ingredients means it is less exposed than its rivals to the likes of Tesco and Asda, it is still finding the going tough.
So while ABF's 6.4 per cent fall in underlying annual profits to pounds 384m was in line with expectations - and the management remains highly regarded - there is little to cheer. ABF's share price has slumped from 638p to just 370p, a fall which has prompted the controlling Weston family to increase its holding from 61 to 63 per cent with the aim of increasing it further to 66 per cent.
With the clouds gathering it was fortunate that Garry Weston had shaken up the board prior to his stroke in September. He is not expected to return to the business for several months, and the new chief executive, Peter Jackson, is running the show.
Mr Jackson's plan is to use the pounds 870m cash pile for more acquisitions after the pounds 450m special dividend this year. His targets are in the food ingredients sector, following the American Spi Holdings polyoils deal and the recent Rohn Enzymes acquisition. These businesses are in "added value" sectors where margins are less exposed to competitive pressures.
Elsewhere, costs will be attacked, particularly in the underperforming parts of its grocery division. ABF has some stellar names such as Twinings tea and Silver Spoon sugar, but it also has a chunk of own-label business with the supermarkets, supplying products such as ice cream and biscuits. If these cannot be knocked into shape they will be sold.
Some gems remain. The low-price format of the Penneys/Primark high street retail division is thriving in the present value-conscious climate. The 100-store chain saw profits rise by 87 per cent to pounds 43m and like-for-like sales grow by 20 per cent, around the best in the sector. On current year profit forecasts of pounds 385m, the shares trade on a forward multiple of 11. That may seem cheap, but the rating reflects the challenges of ABF's main markets and there seems little reason to buy the shares just now.
- 1 Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
- 2 The secret report that helps Israelis to hide facts
- 3 Danish TV reporter is all business up top, all party down below
- 4 Ross Burden dead: MasterChef and Ready Steady Cook star, dies aged 45
- 5 Businessman charged £75 for three small bottles of water in London hotel
Danish TV reporter is all business up top, all party down below
Israel-Gaza conflict: President Obama presses Netanyahu to call ‘immediate and unconditional’ Gaza ceasefire
Ross Burden dead: MasterChef and Ready Steady Cook star, dies aged 45
Zayn Malik on Israel-Gaza: One Direction singer bombarded with Twitter death threats after posting #FreePalestine
MH17 crash: Black boxes show plane suffered 'massive explosive decompression' following shrapnel hit
The secret report that helps Israelis to hide facts
A day in the life of Vladimir Putin: The dictator in his labyrinth
Were 'Poor Doors' added to mixed developments so wealthy residents don't have to go in alongside social housing tenants?
A new Russian revolution: The cracks are starting to appear in Putin’s Kremlin power bloc
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Opponents of Israel's military operation in Gaza are the real enemies of Middle Eastern peace
iJobs Money & Business
Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)
£350 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...
£500 - £560 per day: Orgtel: Java Developer FX - Banking - London - Up to £560...
£350 - £400 per day + competitive: Orgtel: My client, a leading bank, is curre...
£26000 - £30000 per annum + Benefits: Ashdown Group: Account Manager - (Produc...