Friday 5 April 2013

Analysis of Associated British Foods

A British sugar, retail, grocery company

Company: Associated British Foods

Business:  Is a conglomerate working in the field of sugar, agriculture, retail, grocery and ingredients. I bought the stock due to that I was so impressed by their retail part. They are currently benefitting from European tolls of sugar that should have lasted until 2015 but they might be expanded to 2017. Even individual EU countries are actively pushing up price on sugar and lately Finland has been active there with increasing taxes.

Active in: Depends highly on the field but they are mainly based in the UK (as well as Australia due to past), and the rest of EU. They have plenty of suppliers in Asia. The activity is slightly different based on which part we are talking about. For instance retail is well established in the UK but have only just started to expand into EU with a few shops.

P/E: 26.9

Price of stock from closing day 04.04.13
Please note that all the values here are in GBP and not Euro which means that the price is off in comparison to in my stock portfolio but it makes life easier to keep all the calculations in GBP.

contrarian values of P/E, P/B as well as dividend

The running P/E is in this case very high with its 27 and I allow that due to that I see it as being an expanding company even though that is mainly one part of the company doing that. The book value is also too high for me but I also make an exception there. This of course leads to that Grahams formula that should be below 22.5 for a buy is far off. I would even say that one should maybe start to consider selling the stock. P/S is also indicating that stocks have stopped to be cheap but is not yet too expensive. I find that the E/S is a little low but they are pushing low price so I must also accept that. What is a bit sad to see is that the company has for the last five years only in total grown 8.3% while the retail is growing 15-20% per year and currently the rest of the conglomerate is "holding" retail back. However if this retail growth continues then 3-4 years from now the other parts (in terms of earnings) will start to be insignificant which will then also mean that the overall yearly growth of the company will strongly increase. If we look at the Lynch and Graham calculation where also the company growth is considered then ABF is at a level where the stocks are currently correctly valued by the market. Meaning today one should not buy more of this stock and if it increase much further one should start to consider a sale or what for the retail expansion effect that will hit in 3-4 years. The dividend is in % low at the moment due to the valuation of the stock but I find it fair that they pass out 36% of the earnings to the shareholders.
Due to the conglomerate they are having a large yearly revenue and as I mentioned before that I like... they only give out half year reports.

Conclusion: is that I bought this stock at a good moment and today I would not increase in it but will also not sell it. I see a bright future still for this company in the next couple of years especially if they expand the tolls on sugar until 2017 because the sugar part is today one of the best earners in the conglomerate.

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