Why ABF's share price is cheap and attractive right now
This one-time FTSE 100 favourite has been through some tough times, but the future is looking much brighter and the shares are cheap, says David J Stevenson.

The stockmarket can be a very hard taskmaster. Companies that disappoint it after many years of steady improvement often see their shares take a hammering. In addition, if those firms operate in areas where sentiment has soured, the result can prove very messy.
For long-term investors, though, this is where opportunities arise.
Cue FTSE 100 index member Associated British Foods (ABF). To call it “the biggest company most people have never heard of” may be rather hackneyed, but it wouldn’t be too far off the mark.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The group owns several world-class businesses that are individually more familiar than its own name. The firm originated from a bakery founded in 1935 by Garfield Weston. Expansion led to the creation of Allied Bakeries, which became one of the UK’s leaders in industrial baking. In turn, acquisitions and international growth brought about the formation of ABF in 1960. To cut a long story short, the group today has five divisions operating in 53 countries around the world and employs 128,000 people.
Groceries to clothes
The grocery division is a global leader – in the UK its products are used by nine out of ten households. ABF may not be a household name, but its brands, such as Twinings and Ovaltine, certainly are. AB Sugar is one of the world’s largest sugar producers. AB Agri is a top international agri-food business that operates across the supply chain, producing and marketing animal feed, nutrition and tech-based products. ABF’s ingredients businesses are leaders in yeast and bakery ingredients, supplying the food, nutrition, feed and pharmaceutical industries.
Finally, there’s Primark, one of Europe’s largest fashion retailers and the UK’s largest clothing, accessories and footwear seller by volume. Primark has 398 stores in 14 countries, including 13 in the US. In November, it set out plans to get to 530 stores within five years, of which 60 will be in the US.
Decades of strong returns
Garfield Weston’s family still controls 55% of ABF via privately owned Wittington Investments, which in turn is 79% owned by the Garfield Weston Foundation. Historically, ABF has been a consistent multi-decade success story for all its backers. From a price of 78p at the start of 1983, the shares reached £36 each in December 2015 – a return of 46 times. What’s more, back in 1983 the group paid dividends of 4.7p per share. By 2018, the annual distribution to shareholders had grown to 45p per share, equivalent to compound payout growth of 6.5% per year. However, the last four years have seen the picture darken. In common with many firms, the dividend was axed in 2020 as Covid-19 struck. The shares have been sold down to less than half their 2015 level as investors have become disillusioned. So why could we now see a major recovery both in profits and stock price?
The recovery has begun
In the year to end-September 2019, the group made adjusted pre-tax profits of £1.4bn on revenues of £15.8bn, with adjusted earnings (ie, excluding profits and losses on assets and exceptional items) of 137.5p per share. Primark contributed £913m, around 60% of overall operating profits.
Then the pandemic sabotaged sales, causing earnings to crater. Unlike many clothing retailers, Primark has no online arm – it argues that the cost of dispatching goods and processing returns would mean that it would have to charge higher prices. So store closures brought clothing sales to a halt for long periods.
Total turnover was £13.9bn in both the years ending in September 2020 and 2021, down 13% from before the pandemic. Operating profit was down almost 30% and Primark’s operating profit amounted to just £362m in 2020 and £415m in 2021. However, ABF’s fortunes are now firmly on the mend.
The 28 February trading update said that first-half sales and adjusted operating profit should be “strongly ahead” of last year and ahead of the (pre-pandemic) six months to end-February 2020.
First-half Primark revenues are expected to be “well over 60% ahead of last year” at constant currency rates. We’ll have more details about this – and progress at the group’s other businesses – when the interim results are released on 26 April 2022.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
David J. Stevenson has a long history of investment analysis, becoming a UK fund manager for Oppenheimer UK back in 1983.
Switching his focus across the English Channel in 1986, he managed European funds over many years for Hill Samuel, Cigna UK and Lloyds Bank subsidiary IAI International.
Sandwiched within those roles was a three-year spell as Head of Research at stockbroker BNP Securities.
David became Associate Editor of MoneyWeek in 2008. In 2012, he took over the reins at The Fleet Street Letter, the UK’s longest-running investment bulletin. And in 2015 he became Investment Director of the Strategic Intelligence UK newsletter.
Eschewing retirement prospects, he once again contributes regularly to MoneyWeek.
Having lived through several stock market booms and busts, David is always alert for financial markets’ capacity to spring ‘surprises’.
Investment style-wise, he prefers value stocks to growth companies and is a confirmed contrarian thinker.
-
Smart meter rules shake-up: why providers may be forced to pay you compensation over poor service and installation
Consumers facing delays or faults with their smart meter could find it easier to claim compensation as Ofgem lays out new rules to improve standards.
-
Grenada: A Caribbean paradise, with a touch of spice
While most people may not think of Grenada when visiting the Caribbean, it is in fact the perfect stop for an unforgettable getaway with superb beaches, entertainment and food like no other, says Kalpana Fitzpatrick
-
FRP Advisory Group – a bargain in a booming market
FRP Advisory Group's past and future growth isn’t reflected in the company’s valuation
-
Fifty years of investment fiascos – a few examples to learn from
A benign market backdrop over the past 50 years has not prevented recurrent routs, says Max King
-
US stocks are more expensive than ever after Trump's tariffs
We don’t need to second-guess the effect of Trump's tariffs to think that the rest of the world offers better value
-
Filtronic: a UK success story cashing in on the space race
Filtronic has become an all-too-rare Aim success story since it moved down to the junior market
-
How to use SAYE and SIP schemes to multiply your money
Employers’ savings or share-incentive plans like SAYE and SIP schemes can help top up your pension
-
Profiting from the potential of private markets has become more affordable
Opinion Alex Davies, founder and CEO of high-net-worth investment service Wealth Club, tells us where he’d put his money
-
UK equities: where to find a great British bargain
UK equities are staging a comeback, but there’s still plenty of value out there, says Rupert Hargreaves
-
Is the UK housing market doomed to stagnation?
Opinion Housing is the mirror image of Britain’s moribund stock market. A crash would be the best outcome