ABF

stock price: p1030
Conclusion: ABF has gained 20% in six months (cf our January 14th comment). We look for a further 10% rerating based on our unchanged numbers (valuation range p1100-p1130).

Interim statement (40 weeks ended 19 June 2010). Revenue YTD up 14%, in line with half year. Guidance confirmed: “on track to deliver very good progress in earnings for the full year”.

Management confirmed three key drivers for the year
-Sugar (up 12% YTD) will benefit from higher higher profits in both the UK and China, more than compensating for the negative impact of a rainy season at Illovo and also in Spain.
-Grocery (+4% YTD) reaps the fruits of refocus on branded oil business in the US, restructuring undertaken in the UK and cost reduction at Jorfans Ryvita.
-Retail (+17%). Primak continues to perform remarkably well, notably in Spain and also shows progress in other continental European stores. Management is now looking for higher margin for the full year owing to the positive impact of volumes.

We maintain our EPS unchanged at p69.3 for 2010 and p78.4 for 2011.
ABF trades at 14.4xP/E and 7.2xEV/EBITDA, implying 14% and 30% discount respectively to European food stocks. ABF ranks among the top 3 performers in global staples YTD. We look for a further 10% rerating.

ABF

Stock price: p983
Conclusion: ABF remains among our favourite stocks. ABF investments are now delivering return. We are further raising our valuation range up to p1100-p1130, following excellent interim results.

Interim results ended February 2010: sales up 10% reported to £4.8bn (+5% organic), EBIT up 25%, eps up 21% to p30.5. Guidance : management confident to achieve very good progress in earnings for the full year.

ABF is delivering, even better than expected (cf January14-Feb23 comment)
-Sugar profits (up 39%) benefited from improved pricing, a strong euro, lower energy costs and increased sales to the world sugar market. Sugar prices in China were also higher, combined with improved factory operations. UK and China more than offset lower profits at Illovo in Africa resulting from bad weather conditions and adverse currency impact. Azucarera in Spain could turn profitable in H2.
-Grocery earnings are up 52% driven by successful refocus on branded oil business in the US, restructuring undertaken in the UK (Twinings, Allied Backeries) and in Australia and cost reduction at Jordans Ryvita.
-Retail profits up 18% with Primark reporting 8% growth in like for like sales despite tough comps last year, even Spain is doing great, coupled with 9% increase in selling space (196 stores vs 187 last year). We expect Primark to continue to benefit from the the shift towards value in the clothing sector.

Further upgrade in EPS estimates for 2010 and 2011.
We expect adjusted EBIT to increase by 20% to £869m and adjusted net earnings to achieve £547m up 20% vs last year. We are revising our EPS estimate to p69.3 for 2010 and p78.4 for 2011.
Notwithstanding heavy capex ( around 6% sales), free cash flow could exceed £290m this year (H1 turned positive £24m vs £146m outflow last year) helped by higher earnings and improved working capital.

ABF is up 14% since our recommendation mid January. We think there is more to come based on our new estimates. ABF trades at 13.7xP/E and 6.9XEV/EBITDA, implying 30% discount to European food stocks. We expect the discount to narrow and ABF to be rerated to p1100-1130 per share in the next 12m.

ABF

Stock price: p936
Conclusion: Bullish update leads us to reiterate our positive stance on ABF.We are seeing further upside based on our revised valuation range of p1000-p1050 per share.

Interim results update: Strong increase in revenue, substantial increase in net earnings. Guidance full year: “confident of very good progress in earnings”.

ABF confirmed strong momentum in its key businesses
-Profits from sugar will be “substantially ahead of last year” driven by Europe and China.
-Grocery profits will be well ahead of last year, notably Twinings Ovaltine, Allied Backeries and US bottled oil operations.
-Retail benefited from strong trading at Primark and Christmas sales ahead of expectations. Primark continues to outperform peers with 8% increase in like for like sales, exceptionally strong growth in its 14 Spanish stores and increase in retail selling space.
We raise our EPS up to p64.6 (+4%) and p71.8 (+5%) for 2010 and 2011.

Since our last comment (January 14th) ABF gained 9%. We think this is not over, as we are revising our valuation range to p1000-p1050.

ABF

Stock price: p860
Conclusion: We are looking for 14% upside based on our valuation range of p970-p990 per share.

Trading update 16 weeks to Jan,2nd : Sales up 17%, 11% excluding currencies. Management forecasts good revenue growth, significant increase in operating profit, higher financial expenses and good progress in earnings.

ABF’s key businesses sugar, retail and grocery look stronger today.
-ABF’s position in sugar (26% of profits) strengthened thanks to the Azucarera Ebro acquisition in Spain, the access to LDC sugars through its stake in Illovo and the sale of Polish sugar. Sales were up 23% excluding Azucarera. Following the changes in EU regime, prices will benefit from an improved balance between supply and demand.
-Primark (35% of profits) continues to exploit the shift towards the value sector in the clothing retail market. Value retailing has grown from 11% in 1998 to 25% of the market in 2008. Primark relies on large volume, low mark-up, minimal advertising and low overheads. Sales were up 19% in Q1. We expect Primark to continue to grow almost double digit thanks to the extension of its retail network (196 stores currently) in the Continent (Spain, Germany, Netherland, Portugal and Belgium).
-Grocery (26% of profits) has refocused on branded business (Kingsmill, Ovaltine, Twinings, Jordans, Ryvita, Blue Dragon, Patak) following the transfer of its commodities oil activities to Stratas. Sales increased 4% in Q1. Profits should benefit from ongoing restructuring measures in the division (cf Twinings, Australian meat).
- Sales in ingredients were up 5% in constant currencies in Q1. Visibility is lower in ingredients due to the volatility in commodity prices. However, this is a smaller part of the business.

ABF trades at 13.6xP/E and 6.5xEV/EBITDA based on 2010 estimates (62p +7.5% vs 2009-68.2p in 2011 +9.9%). We think the business should continue to trade at a discount, as it is a conglomerate. Nevertheless, 40% discount based on EV/EBITDA looks high considering the strength of its three key businesses. Our DCF based valuation suggests 20%+ upside.