Here’s why the Associated British Foods (ABF) share price surged today

The Associated British Foods (ABF) share price just leapt 5% on earnings. Zaven Boyrazian analyses the report to see whether it’s time to buy.

| 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.

A graph made of neon tubes in a room

Image source: Getty Images

The share price of Associated British Foods (LSE:ABF) jumped more than 5% today after the company released its full-fiscal-year results. The jump has helped reverse some of the adverse performance seen throughout 2021. And the 12-month return is almost back in the black. But can it continue to climb higher? Let’s take a closer look at what the business has been up to and whether I should be considering it for my portfolio.

Decent earnings in a tough year

As the name suggests, Associated British Foods is a food specialist operating on an international scale. Its portfolio contains brands like Kingsmill bread, Patak’s and Blue Dragon cooking sauces, as well as Twinings, among others. But the firm isn’t restricted to just the grocery space, as it also serves the sugar, agricultural and ingredient industries. And on top of that, it owns and operates the fast-fashion retailer Primark. Needless to say, this is a pretty diversified business.

Looking at the latest results, it’s easy to understand why the ABF share price rose today. On the food-related side of the group, revenue over the last 12 months jumped by a respectable 5% while operating profits climbed 10%, reaching £760m. Meanwhile, Primark managed to deliver an impressive 15% growth in underlying earnings when ignoring the effects of 2020 furlough scheme repayments. Although revenue did suffer due to supply chain disruptions.

Overall revenue for the past year came in flat, as did earnings. But with dividends now reinstated along with net debt falling by just over £700m, the firm looks like it’s primed to make a recovery.

Risks continue to surround the ABF share price

As encouraging as this report is, there remain plenty of hurdles to overcome. The pandemic may be a short-term problem, but it’s wreaking havoc in some parts of the business. Most notably, Primark.

Stores reopened earlier this year, and the company has managed to start moving unsold inventory. But Covid-19 is creating substantial congestion at harbours and ports that, in turn, has led to a sea container shortage. Consequently, management warned that some of Primark’s product lines will have limited availability for the foreseeable future. That’s not exactly encouraging since Christmas is just around the corner.

Meanwhile, the cost of producing its food and ingredient-related products is rising due to inflationary pressure.s The company intends to raise prices to try and maintain profit margins, but this may result in reduced sales volumes as businesses and consumers look to find cheaper alternatives.

The bottom line

All things considered, Associated British Foods looks like it’s in a much stronger position than a year ago. The residual effects of the pandemic will continue to plague operations for a while, in my opinion. However, I’m pretty optimistic about the firm’s recovery strategy. And over the long term, I think the ABF share price can return to its former glory. Therefore, I am considering this business for my income portfolio.

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 considered so you should consider taking independent financial advice.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Is another stock market crash on the way?

The US stock market has already crashed in 2022, losing 25% of its value at its June low. However, UK…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A 6.2% FTSE 100 dividend stock I’d buy to boost my income

This FTSE 100 dividend stock offers a yield well above the index average. Here's why I'd buy it to supercharge…

Read more »

Abstract 3d arrows with rocket
Investing Articles

2 beaten down FTSE 100 shares that look ready for liftoff 

With the UK market showing strong signs of recovery, I am considering these two overlooked FTSE 100 shares for my…

Read more »

Smartly dressed middle-aged black gentleman working at his desk
Investing Articles

3 top UK shares for August 2022 and beyond

I've been buying top UK shares since late June such as these three companies that look attractive right now.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

FTSE 100 live: the Footsie closes on 7,500

The Footsie, like many other global markets, has been pretty volatile in recent months, but today it almost closed above…

Read more »

Woman using laptop and working from home
Investing Articles

High-dividend stocks! Should I buy Royal Mail’s shares for its 7.3% yield?

The Royal Mail share price carries a dividend yield twice as large as the average for UK shares. Does this…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

UK shares: should I buy this oil and gas infrastructure stock?

Jabran Khan is looking for the best UK shares for his holdings. Could this oil and gas infrastructure provider fit…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

This REIT could be the perfect stock to supercharge my passive income stream!

Jabran Khan is looking for stocks to boost his passive income through dividend payments. He identifies one REIT to help…

Read more »