This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Associated British Foods (Q4 update 10 September)
Associated British Foods (ABF) stuck resolutely to its full-year outlook at the third quarter (Q3) statement, despite a dismal performance at the growth engine of Primark and a worsening outlook for sugar. Improving margins do provide a foundation for optimism, but the Primark driver is not seeing the growth in the US that has been hoped for, while low sugar prices thanks to a supply glut will hold back profit in the coming year. Primark needs to double the number of its US stores to maintain profitability, but so far promising new sites are not forthcoming. How long investors will remain content with performance remains to be seen, but for now Primark’s contribution continues to counteract the weakness in the food divisions.
At 16.4 times earnings the firm is now the cheapest it has been since 2013, and is well below the five-year average forward price-earnings (PE) ratio of 24.7. It also trades in line with its peers, compared to a more normal two-year average of a 15% premium.
ABF shares have not had much luck of late, and are currently struggling to hold vital support around £22.91. Below this the next level is £21.92. Bullish sentiment is likely to remain in check until we move back above £24.00, and even downtrend resistance from the October 2017 highs comes into play at £27.00.