We suggested investors buy into the positive price momentum behind Associated British Foods (ABF) in September on the basis the diversified food, ingredients and retail conglomerate was churning out good news and there was further upside for the shares.

Our thesis was the broad-based growth business had passed through the worst of cost inflationary pressures and the Primark-owner was entering a period of significant earnings growth, driven by margin recovery at the aforementioned discount fast-fashion chain and in groceries and sugar, as well as profit improvement in its ingredients business.

WHAT HAS HAPPENED SINCE WE SAID TO BUY

Associated British Foods’ shares have risen to fresh 52-week highs since the Weston family-controlled conglomerate posted better than expected annual results on 7 November, when management lauded the group’s ‘strong performance’ in a ‘demanding environment’ during the year ended 16 September 2023.

The FTSE 100 firm reported a 16% surge in group revenue to £19.8 billion and a 9% rise in adjusted pre-tax profit to £1.47 billion, after raising prices across the piece to mitigate high levels of inflation. Management also insisted Primark, the highest-profile division within the group, was as ‘well placed as it has ever been’.

Cash-generative Associated British Foods hiked the year’s total dividend by 37% to 60p, including a surprise 12.7p (£100 million) special dividend, and announced a fresh £500 million share buyback.

WHAT SHOULD INVESTORS DO NOW?

We would stick with Associated British Foods given the potential for further earnings upgrades. International grocery brands Twinings, Ovaltine, Blue Dragon, Patak’s, Jordans and Mazzetti are trading well, and Primark, the jewel in the conglomerate’s crown, continues to expand in Europe and the US with the discounter’s value offer resonating with existing and new customers alike.

Liberum analysts believe the market is underestimating the like-for-like growth and margin expansion potential at Primark in the year to September 2024 ‘and outer years’, as well as profit improvements to come through in the sugar business this year given favourable prices and a normal crop season.

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