Citywire for Financial Professionals
Stay connected:

View the article online at

Smart Investor: ABF – a good example of a share to avoid

Sometimes it is helpful looking at why a stock is not attractive. Associated British Foods  (ABF), whose brands include store-cupboard stalwarts Kingsmill, Ovaltine, Patak’s and Twinings, may sound like a defensive company but its numbers just don't add up. Smart Investor explains why.


ABF shares are unattractive at the current price. Sure, the company is fundamentally sound, debt levels are low, interest cover is adequate and it enjoys a substantial economic moat. In addition, it has been profitable in each of the past five years, with a fairly impressive annualised growth rate to boot.

However, a below index average yield, a rich P/E, disappointing free cash flow and, in particular, a low ROE mean that it is simply not attractive enough to warrant investment.

Sign in / register to view full article on one page

12 comments so far. Why not have your say?

alan franklin

Jul 13, 2012 at 07:10

Its is a possessive pronoun; it modifies a noun.

It's is a contraction of it is or it has. The apostrophe takes the place of a letter or letters.

Smart Investor should learn that when he writes about "its numbers" he shouldn't put an apostrophe between "it's" - writing it like that means "it is."

In that event the missing character would be indicated by the apostrophe - as in "shouldn't" ( should not.)

Please take a smarter English course.

report this

Harry Brooks (Citywire)

Jul 13, 2012 at 08:41

Thanks Alan, that's been corrected now. To be fair to Smart Investor, the mistake was introduced after he submitted his copy.

report this


Jul 13, 2012 at 09:11

Mr. Market would not agree with you. It is a top performer in my virtual portfolio of defensive stocks.

Firstly: It must be accepted that food processing, and wholesale supply are low margin. Always have been. That is why the decision was made to improve the business model by expanding into retail clothes, where margins are much higher.

Secondly: I think it is important to point out that the founders, The Weston family have held executive and consultative roles throughout the company's distinguished development.

Thirdly: No matter what happens to the world's economy, people must eat, so I cannot think of a more solid business to invest in.

Fourthly: When the company changed its branding to Kingsmill, the resulting products were not high standard, but a lot of work was put in and the varieties of bread which they now offer are much improved. I would rank them amongst the best.

Finally: The company has been steadfastly innovative and expansionary, I see no reason why this trend will not continue.

report this

William Phillips

Jul 13, 2012 at 09:40

The payout ratio and yield are low because the Westons don't want highly taxed dividend income, but that may not always be so as share stakes become diffused down the generations.

Writing a long deprecation of ABF's present valuation while barely discussing Primark, one of the most brilliant retail success stories of the last decade, seems unduly myopic unless every share in a portfolio is to be bought and sold on a one-year outlook.

report this

Jeremy Bosk

Jul 13, 2012 at 09:45

Smart Investor argues on financial valuation grounds more than brands. Having it both ways, I suggest that price conscious consumers will increasingly avoid brands for own label and no name products. Primark is a well known brand but is known for cheap and nasty rather than quality. Wear it once, as cheap imitation fashion, then throw it away is a limited market.

report this

Ivor Nestegg

Jul 13, 2012 at 09:48

From my point of view, the fact of the matter is that this is one of the best performing shares in my portfolio at present. Up by 18% in the last year compared with a fall of 9% for the FTSE100 over the same period.

Quid nunc?

report this

Daniel Victor

Jul 13, 2012 at 10:09

If your profitability is low,you probably need to plough back most of the profits you do make in order to grow at a sensible rate.In any case,a company is better off using its profits to repay debt rather than to pay a higher dividend.

report this


Jul 13, 2012 at 10:26

I worked for an ABF Company for five years, many years ago.

I enjoyed it and was impressed by the very efficient way the organisation was run, particularly on the financial side.

In the long run I don't think you will ever lose money with ABF.

report this


Jul 13, 2012 at 10:29

Sometimes financial commentators have to write some form of claptrap in order to earn a living & platforms such as Citywire, on a unexciting no bad news day (China growth was according to expectations!) have to have some form of rubbish to put out there in order to pretend to say something remotely relevant for a company that declared some excellent results yesterday, given the economic times we live in!

I am gradually losing faith in Citywire & its "young pups", pretending to know it all when they know "jack", just as I have with Hargreaves & Lansdowne`s "Beared One" as someone so aptly called him yesterday in his comment on the much-plugged Artemis Special Situations Fund by HL!

Fact is that ABF is a strong solid company operating in some of the most basic, unpretentious "absolute need" industries whose products we all need. As stated above, its a best performer in my portfolio too - and is likely to carry-on being so, unlike some of my other more glamorous stocks& funds that I previously foolishly bought into listening to similar claptrap as the one spouted by this so-called "Smart Investor" - what a misnomer!!!

Thankfully, I am now gradually changing my portfolio, and doing my own homework, & yielding much better results than listening & letting other people manage my money & enriching them in the form of commissions & fees! We live & we learn!!!

report this

David Mason

Jul 13, 2012 at 21:01

Following in his father Gary's footsteps, George Weston is doing a great job of running ABF, but if people prefer the Banks, M&S or a host of other badly manged company's, with a share price going nowhere and overpaid Chief Exec's ...good luck to them!

report this

John W Plant

Jul 15, 2012 at 07:21

I was amazed to read the general thrust of the argument, since I consider ABF to be one of the best defensive shares - So do the respondents who have commented!

report this

Steven Heath

Sep 11, 2012 at 03:23

ABF , has held it's share price , when most collapsed . Wish i had bought at the beginning of this year . Good Solid Share .

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire guide to investment trusts

In association with Aberdeen Asset Management

Henderson Global Investors: 2014 looks set to be another strong year for UK commercial property

Andrew Friend, acting co-manager*, and Marcus Langlands Pearse, co-manager of the Henderson UK Property Unit Trust (HUKPUT), provide an overview of the key risks and opportunities for the UK commercial property market.

More about this:

Look up the shares

  • Associated British Foods PLC (ABF.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us


Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet