Analysis of ABF 2014

Company: Associated British Foods

ISIN GB0006731235 | WKN 920876

Business: A British conglomerate with agriculture, agricultural products as well as retail. Currently they have five business segments: Sugar (the old cash cow with current difficulties generating 16% of revenue), Agriculture (10% of revenue), Retail (The fastest growing segment with the EU and soon US expansion of Primark generating 38% of revenue), Grocery (26% of revenue) and Ingredients (less than 10% of the revenue).

Active: Heavily in Europe with the UK and Ireland as home base. Retail is all over EU and will in 2015 expand into the US. They are also present in Australia with Bakery and Sugar is present in Africa as well as in China.

P/E: 30.8


Here you can find the previous analysis of Associated British Foods (ABF) 2013.

The P/E of ABF is far too high for my liking with 30.8 as is the P/B that is running at 3.7. This also means that Graham gives a no go signal on this! The earnings to sales are now ok with 6% and also the ROE has improved slightly to 11.8% which is still pretty mediocre. The book to debt ratio is excellent with 1.7.
in the last seven years they have had a yearly revenue growth rate of 6.7% which is excellent (it was down last year though!) and this then gives us a motivated P/E of 19 to 22 which means that ABF is highly overvalued by the market.
They pay a tiny dividend of 1.2% which represents 35% of their earnings so they should at least be able to keep it up.

Conclusion: Graham says no to ABF and so do I. Today ABF is far too highly valued for being of interest to step in as a new shareholder in my opinion. The P/E is high, the P/B is high, the ROE is not even close to be of interest and the dividend is insignificant. Since I am already a shareholder I will remain as such. I bought it due to Primark and I will remain as a shareholder for as long as Primark is doing well.

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