How To Sweeten Your Shares In Associated British Foods plc

Associated British Foods plc (LON:ABF) and Tate & Lyle PLC (LON:TATE) fit together.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

PrimarkThe third-quarter results from ABF (LSE: ABF) demonstrate one of the advantages of out-of-fashion conglomerates: a natural diversification. Primark, ABF’s retail arm, grew sales by 20%, whilst the older sugar business saw a 20% drop in revenues.

Primark now makes up over half of ABF’s profits and has fuelled the rise in the company’s share price, up 68% in the past 12 months. Its opening stores in continental Europe and this year will increase its total selling space by over 10%.

Primark plans to open in the US in 2015/16. That has dangers. Many UK companies have foundered in the States in the decades since Hanson, the epitome of conglomerates, was a company from over here doing rather well over there. But both Topshop and H&M, which appeal to similar customers as Primark, are successful. And it’s notable that ABF’s cautious family management are opening the first store in Boston, where Irish connections will facilitate brand recognition.

The drag on ABF’s business is sugar. It’s under pressure from intense price competition in the run-up to the abolition of EU quotas in 2017. Longer term, the Western epidemic of obesity is rapidly turning sugar into the new tobacco, with increasing calls for controls on its consumption.

Natural sweetener

One way of sweetening that risk is to also hold shares in Tate & Lyle (LSE: TATE). It saw the writing on the wall and sold its sugar business in 2010, progressively turning itself into a speciality ingredients business. Its products include Sucralose and Stevia, two main alternatives to sugar. The more sugar consumption declines, the better for Tate & Lyle. The two companies fit together so well that the corporate finance fantasist in me imagines ABF taking over the much smaller Tate & Lyle and spinning off retail and food as separate companies.

Tate’s shares haven’t fully recovered from a profit warning in February, as Chinese over-supply of sucralose provoked a price war. That has created an entry point into the long-term story, with the company trading on a PE of 13.

Tate & Lyle pays a useful 4.4% yield, but nobody would hold ABF for its 1.1% payout. But its shares, which have been a four-bagger over the past five years, should have plenty of growth in them yet. However, on a prospective P/E of 29, such growth doesn’t come cheap.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Tony Reading owns shares in ABF and Tate.

More on Investing Articles

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »