Stock of the day 03/09/2015 – Associated British Foods PLC

After a fairly choppy 2015 so far, the deceptively named Associated British Foods announces its latest pre-close trading update on Monday.

Can the release help the stock ascend back to its mid-August highs?

The owner of (deep breath) Patak’s, Ryvita, Silver Spoon, Twinings, British Sugar AND, as its name certainly doesn’t suggest, Primark opened the year at £31.83 after hitting a record high of £32.93 at the start of December. However, January got off to a rocky start, despite a trading statement covering the final 16 weeks of 2014 that saw a 3% increase in group revenue, aided by a 15% jump in sales at Primark, due to the announcement that the adjusted operating profit for the group would be lower due to fluctuations in the sugar price.


(Source: IT-Finance.com 03/09/2015)

By the end of January this slump had caused Associated British Foods to close lower than £30 for the first time since mid-November, before an end of the month rebound was wiped out at the start of February due to the news that the company would ‘impair’ its investment in Vivergo Fuels Ltd following the collapse of the oil price.

ABF then managed to climb back above the £30 mark with its end of February trading update, as investors ignored the troublesome sugar division to instead focus on the 16% increase in Primark sales year-on-year, an extra boost coming from impressive figures out of Primark’s European adventure. Yet once again, after hitting £31 at the start of March the stock took another tumble (a trend that persists throughout the year) to reach a 4 month low of £28 by the start of April.

After climbing back to its £30 safety net by the middle of that month, Associated British Foods’ half year report at the end of April caused the stock to reach a 2015 nadir of £27.15. The reason? Well, whilst Primark saw a 12% increase in sales alongside an 8% jump in operating profits to £322 million, for the group as a whole saw pre-tax profits halved to £231 million due to the aforementioned issues with sugar and the costly fallout from the Vivergo venture.

The company managed to pick itself up and dust itself off following that price drop, and steadily climbed across the rest of April and May (boosted by the Tory-election victory) before reaching £31 once again by the start of June. And whilst ABF soon fell away from that price in anticipation of its July trading update, that release proved to be more successful than the rest of its 2015 announcements, as the company raised its annual earnings guidance by 22% to above the £0.99 paid in 2012/13. This caused the stock to surge, with the post-announcement good-will carrying it all the way to a near-record (and 2015) high of £32.90 by the middle of August.

Of course, like most stocks at the moment, the recent Chinese volatility eroded this price somewhat, but Associated British Foods has been fairly robust with its rebound, leaping from £29.75 at the start of last week to a current trading price of £31.97 (IT-Finance.com, 03/09/2015).

In terms of next Monday’s trading statement, investors will be looking for progress on the upcoming launch of Primark in the US, alongside an update on its beleaguered sugar division; this has left Associated British Foods with a consensus rating of ‘Hold’ and an average price target of £31.47.