Some FTSE 100 stocks could be classed as ‘buy and hold forever’ in my opinion. Associated British Foods (LSE:ABF) is in that category for me. ABF released full-year results this morning, further solidifying my opinion.
ABF is a diversified group of businesses which operates in the five segments. These are sugar, agriculture, retail, grocery and ingredients. Its food production arm is recognised as one the world’s largest producers of sugar and bakers yeast. In addition, it possesses a retail arm and owns Primark. Other notable brands include Twinings, Kingsmill, Allied Bakeries, Silver Spoon, and many more.
FTSE 100 champion
The Covid-19 pandemic has caused unprecedented demand on food items as many people are eating far more meals at home than they used to. You may have seen reports of panic-buying when the first lockdown occurred. Food items and its production are essential, which is why I believe ABF has good defensive qualities. On the other hand, its retail arm has taken a huge hit during the economic downturn due to the closures of Primark stores during the lockdown.
When the market crashed, ABF lost nearly 40% of its share price value. Prior to the downturn, shares were trading at close to 2,600p per share. At the height of the crash, shares could be purchased for close to 1,600p per share. Right now, I can buy shares for 1,700p which is a bargain price in my opinion. This equates to a year-to-date loss of 32% of share price value. ABF’s current forward price-to-earnings ratio is close to 15 which signals to me that it represents a bargain compared to industry peers.
Full-year results
ABF released full-year results today for the fiscal year ending 12 September 2020. As expected, growth was affected by the height of the pandemic in ABF’s fiscal Q3 and Q4. It’s fair to say a lot of FTSE 100 firms will have seen adverse performance levels during this time period.
ABF reported revenues of £13.9bn, down 12% compared to the same period last year. ABF still made a healthy profit of £1,024m but this was also down 28% compared to 2019. Q3 is where the full-year decline in revenue occurred. The closure of Primark during the lockdown is estimated to have cost ABF £2bn of sales and approximately £650m of profit.
Within its business segments, profit for grocery, sugar, ingredients and agriculture combined was a very strong 26% with reported growth in each segment too. ABF also has approximately £1.5bn in cash reserves which will serve well if further economic fluctuations occur.
Cheap as chips
Despite the fact that Covid-19 and the economic downturn affected sales I still think ABF is one of the best stocks out there. With its defensive traits during the current economic climate it can lose nearly £2bn worth of sales and still generate a healthy profit margin. In addition to that ABF has a proven track record of success and growth for many years now.
Despite the fact we are going into a second national lockdown, the government knows it needs to stimulate the economy and get consumers spending money. If Primark has an uninterrupted year of trading ahead after this lockdown, don’t be surprised to see excellent results ahead. At its current price point I consider ABF to be an FTSE 100 champion at a bargain price.
