Monday 3 March 2014

Analysis of Associated British Foods (ABF) 2013

A British sugar, agricultural and retail conglomerat

Company: Associated British Foods

Business:  A British conglomerate with traditionally main focus towards agriculture and agricultural products. Currently they have five pillars: Sugar (20% of revenue), Agriculture (10% of revenue), Retail (30% of revenue), Grocery (30% of revenue) and Ingredients (less than 10% of the revenue). Their fastest growing part is Retail with the low-price chain called Primark.

Active in: Main focus since long time has been the UK and Australia and they are currently expanding strongly in the rest of EU especially with the retail part.

P/E: 39.6

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

The P/E for ABF is insane high with 39.6 and the P/B is also an outrage with 3.6 which gives us a very clear no go from Graham! The earnings to sales are at 4% which is ok but also not more and the ROE is down at 9.1% which is also not very good. The book to debt ratio is however excellent with a ratio of 1.7. Their yearly growth in the last six years has been 8.3% which is excellent and it then gives us a motivated P/E of 23 to 26 which means that today on the market ABF is highly overvalued. They pay a tiny dividend of 1.1% which correspond to almost 43% of their earnings so they can at least keep it at that level.

Conclusion: Graham says no to ABF and so do I. This company is today highly overvalued and I see no reason to make an investment in it. If you own the shares like I do then I would seriously start to consider what to do with them and if there are not better options out there... however... people keep going to the store and are shopping like crazy so my set divesting criteria for a growth/mall stock is not yet accomplished.

Should I sell or should I stick to the concept of "Keep Stocks and Carry Long"?

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