Is Associated British Foods plc A Better Investment Than Unilever plc, Diageo plc, Tesco PLC And Imperial Brands PLC After Trading Update?

Will Associated British Foods plc (LON:ABF) (LSE:ABF.L) deliver higher investment returns than Unilever plc (LON:ULVR) (LSE:ULVR.L), Diageo plc (LON:DGE) (LSE:DGE.L), Tesco PLC (LON:TSCO) (LSE:TSCO.L) and Imperial Brands PLC (LON:IMB) (LSE:IMB.L)?

Associated British Foods plc
Associated British Foods plc

Associated British Foods plc (LON:ABF) (LSE:ABF.L) has released a trading update to investors. For H1, it expects excellent progress in adjusted operating profit and adjusted earnings per share, which is good news for its investors. Its trading outlook for the full year is unchanged, with progress expected in adjusted operating profit and adjusted earnings per share.

In my opinion, the investment case for Associated British Foods is improved by its stronger cash flow. It expects stronger cash flow in H1 before acquisitions and disposals compared to H1 in the previous year. This will be driven by higher profit before depreciation and amortisation, as well as a lower working capital outflow. Capex will also be higher as the company invests in its retail operations and in Primark’s expansion.

Investment in new businesses in the year to date equals £60 million. Associated British Foods expects a net cash balance of £200 million at the half year due to the benefit of net proceeds of £0.5 billion from the sale of the US herbs and spices business and the south China cane sugar operations.

It expects most of the full year increase in adjusted operating profit to be generated in H1. This is due to more advantageous forex hedges in H1, forex changes, while last year’s change in Illovo’s financial year end benefitted H1.

An investment in Associated British Foods has fallen 23% in value in the last year. This compares to an investment in Unilever plc (LON:ULVR) (LSE:ULVR.L), Diageo plc (LON:DGE) (LSE:DGE.L), Tesco PLC (LON:TSCO) (LSE:TSCO.L) and Imperial Brands PLC (LON:IMB) (LSE:IMB.L, all of which have been positive. For example, Tesco is up 3%, Imperial Brands is 2% higher, Unilever’s shares are 23% higher and Diageo has gained 22% in the last 12 months.

In my view, Associated British Foods has investment appeal in the long run. I like its diversified business model and feel its strategy should help to improve its investment performance. However, I’d rather invest in Diageo, Unilever or Imperial Brands, with Tesco also having more investment potential in my view on valuation grounds. Therefore, although Associated British Foods may perform better as an investment in future than it has done in the last year, I’d rather look elsewhere if I was to invest in the consumer sector.

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