What they do:

Associated British Foods is a gigantic food company operating in over 50 countries. They work in many areas of the food chain from farming all the way up to retail. its a fairly typical mega-corp type company which operates many households name.

They own famous brands including Allinson, Ryvita, Kingsmill and tip top. A full list can be found:  Grocery Brands

Pros

Size – Companies don’t come much larger than A.B.Foods. They have the size to benefit from massive bulk discounts and a huge breadth of knowledge and experience to enable them to operate in any food sector they wanted.

Brands – They own multiple well known and liked brands giving them an advantage when introducing new products.

Rising profit – Income and profit have been rising over the last few years.

Director trading – There have been a few purchases by directors within the last year and no sales. Not as many purchases as I normally like to see but the sums involved are substantial if the money has come from the directors own pockets.

Cons

Expensive – The companies assets – liabilities comes to £1.2 billion however the market cap is currently about £25 billion. That’s an average ratio for this sector which suggests its not currently undervalued.

Crowded market– The food market is always going to be crowded which pushes prices down and means everyone involved has to operate on tight margins.

Foreign assets – As the company operates in over 50 countries there is many political/geographical issues which an investor wouldn’t be able to keep track of.

Summary

The company itself is fine and will be able to overcome most problems it comes across due to its sheer size and breadth of knowledge. However it’s probably valued fairly so investing in it wouldn’t result in any special results. The dividend payment is very small but consistent.

The price isn’t likely to move massively unless there’s some scandal involving several of the brands they own or they have a very favourable acquisition. Overall I see no reason to invest in ABF over putting the money into an index fund.

Disclaimer – Not sure if I need this here or not but just in case anyone is confused, I am not a financial advisor and this post is not investment advice to anyone. It is simply a summary of the research I did myself when looking for shares to buy myself.

Advertisement