Stock price: p1030 ($15.72 USD)
Conclusion: Associated British Foods, (ASBFY.PK), (ABF) has gained 20% in six months (cf our January 14th comment). We look for a further 10% rerating based on our unchanged numbers (valuation range p1100-p1130).
Interim statement (40 weeks ended 19 June 2010). Revenue YTD up 14%, in line with half year. Guidance confirmed: “on track to deliver very good progress in earnings for the full year”.
Management confirmed three key drivers for the year
- Sugar (up 12% YTD) will benefit from higher higher profits in both the UK and China, more than compensating for the negative impact of a rainy season at Illovo and also in Spain.
- Grocery (+4% YTD) reaps the fruits of refocus on branded oil business in the US, restructuring undertaken in the UK and cost reduction at Jorfans Ryvita.
- Retail (+17%). Primak continues to perform remarkably well, notably in Spain and also shows progress in other continental European stores. Management is now looking for higher margin for the full year owing to the positive impact of volumes.
We maintain our EPS unchanged at p69.3 for 2010 and p78.4 for 2011.
ABF trades at 14.4xP/E and 7.2xEV/EBITDA, implying 14% and 30% discount respectively to European food stocks. ABF ranks among the top 3 performers in global staples YTD. We look for a further 10% rerating.
