Associated British Foods (Company review) – November 2021

Associated British Foods (ABF-L) is a publicly listed company in the UK. It has a five different arms: Grocery, Sugar, Agriculture, Ingredients and Retail. Employing 128,000 people, it is the 8th largest private-sector employer in the UK, according to Disfold. 

Going by most revenue, Retail comes first with £5.5 billion. It includes the Ireland-based Primark brand, a ultra cheap apparel store where shirts typically go for $3.50 a piece. They settle in suburban areas with large square footage (think Walmart) and source most of their wares from China, India, Bangladesh and Turkey (Number of supplies factories respectively: 475, 117, 104, 77). The game of fast fashion used to be dominated by Zara of Spain and H&M of Sweden, not anymore. Primark has 398 stores worldwide in 14 different countries. It has 191 stores in the UK, 52 in Spain, 36 in the Republic of Ireland, 32 in Germany, 20 in the Netherlands, 20 in France, 13 in the United States, the list goes on. The retailler is planning to open more than 100 new shops in the next five years, aiming to expand into the US with 47 stores. The brand has been dealing with supply-chain bottlenecks and lack of Heavy Goods Vehicle drivers in the UK. It it also being affected by port congestion. Although the other parts of ABF will be increasing prices due to food inflation, Primark has not passed on higher costs to consumers and will not (see here: ). The retailer didn’t do that great during the pandemic. Because of public health measures, store closures were inevitable. The company is betting that vaccinated countries will enjoy a surge of shopping and have less lockdowns. After having resisted going digital after the pandemic hit, Primark is now starting to invest into it, albeit slowly. As of right now, it has a marketplace but lacks sizing info, recommandations and ability to get products delivered to customers. I went on it but clicking on an item brought me to a broken link that didn’t have a picture or any product details. The point of investing in the digital market is so people can browse and see availability before going to a physical store. The next step for this company (which is not in the cards right now) is to build an online marketplace that can compete with other online rival such as Shein of China. Primark’s dominance in ultra-cheap fast fashion may only work with having physical stores, I think their investment into the digital world is a signal they may eventually sell online. The company is also expanding into home and lifestyle goods, they are currently testing this out in a small number of stores.

Grocery comes second in revenue at £3.5 billion. It emcompasses alot of brands, but they are mostly only recognizable by people who live in the UK. More well-known brands include Twinings, a popular brand that sells a variety of teas. In their annual report, the company’s Chairman said this segment was introducing new products and expanding international distribution. ABF is trying to get into various markets with premium products.

Coming in third is sugar with £1.6 billion in sales. It is involved in the growing, processing, and selling sugar beet and sugar cane to industrial users. The price of sugar has increased from around $15 USD per pound In February 2020 to $18.57 today, according to Trading Economics.

Coming in fourth is agriculture with £1.5 billion in sales. It mostly sells animal feed and offer other products and service to the agriculture sector. This segment profited from higher commodity prices and increase in feed volumes, notably from China for pigs not killed by African Swine Fever.

Coming in last is the ingredients section with £1.5 billion in revenue. It manufactures baking ingredients including yeast, enzymes, lipids, yeast extracts, and cereal specialties. 

Adjusted operating profit of Grocery, Sugar, Agriculture and Ingredients combined increased by 10% this year, building on an increase of 26% last year. Earnings and dividends per share took a hit in 2020 and 2021 but are recovering. 

I think the company’s push of Primark into the US as well as the recovery from the pandemic may prove to be a good medium-term investment opportunity. It still hasn’t recovered fully from its stock price on January 1st 2020. It was at £2636 then, now it’s at £1923. Anyways, it’s up to you. That’s all I have for now.

I don’t have any positions in the stocks mentioned in this article.

Sources: Statista, The Guardian, the Economist, Annual Report.

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