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Share tip of the week, 19 November

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Sheridan Admans, investment research manager at The Share Centre picks Associated British Foods as his share of the week. Here’s why;

 

Associated British Foods recently reported full year results that were in line with expectations, with strong growth from its Sugar and Primark operations. However, profits slipped at its ingredients and grocery operations which were impacted by tighter consumer spending, restructuring and its ability to fully recover raw material costs respectively. The group saw a strong increase in cash flow and return on capital employed, rising to 17% from 15.8% the previous year.

The group’s budget clothing operation, Primark, continues to go from strength to strength as it maintains its expansion into Europe. Looking ahead the retail arm should continue to benefit from a further six store openings, better cotton pricing and consumer demand for quality low cost clothing essentials.

Associated British Foods’ cash flow is stronger and supported by a number of expansion projects reaching completion. The dividend rose 15% for the year and is higher than the three year annualised growth rate, rising to a total of 28.5 pence per share.

We continue to recommend Associated British Foods as a ‘buy’ for investors seeking a moderately defensive business that offers potential for growth. We believe the business is well positioned to see some improvement in its grocery business and continued growth from its retail operation looking ahead. It anticipates that its ingredient business is likely to remain challenged, with some weakness in its sugar operation from lower European production.

All information given including prices, yields and our opinion is correct at the time of publication.  Our opinions on investments can change at any time and for our latest view please go to www.share.com.  To understand how our Advice team arrive at their views please read our Investment Research Policy.

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