Good news — the FTSE 100 has managed to claw itself back into positive territory for 2025! On the downside, some of its more growth-focused members aren’t faring quite so well.
Primark-owner Associated British Foods (LSE: ABF) is one example. It may only be lagging the index slightly this year. But its shares are still down over 20% in the last 12 months.
Is this a wonderful opportunity for contrarians? Here’s my take.
Slowing sales and lower prices
Much of the group’s share price woe can be attributed to concerns about slowing retail sales in the UK and Ireland, affectign its Primark chain and pushing the company to lower its growth targets. Elsewhere, the £16bn cap’s sugar division has been suffering thanks to an oversupply of the sweet stuff and subsequent lower prices in the European market. Operations in Africa have also underperformed. The recent resignation of Primark boss Paul Marchant following an allegation about his behaviour has hardly helped matters either.
Collectively, these difficulties led the company to report a 10% fall in interim adjusted pre-tax profit to £818m this morning (29 April). Group revenue also fell by 2% to £9.51bn.
While ABF has maintained its annual guidance for low single-digit sales growth at Primark (and maintained its dividend at 20.7p per share), this hasn’t been enough to stop the shares sliding.
But is this top-tier stock now worth buying?
Prior to today’s fall, the shares were changing hands for 12 times forecast earnings. That’s not expensive for a UK growth stock. In fact, it’s in line with the average valuation within the FTSE 100.
What’s even more interesting is that this is significantly below the company’s mean price-to-earnings (P/E) ratio of 18 over the last five years. Seen from this perspective, prospective investors would be getting quite a lot of bang for their buck.
Of course, sentiment could stay weak as talk of a potential recession resulting from US tariff policies gets louder. And margins at budget retailers such as Primark weren’t exactly high to begin with!
Regardless of what US President Trump does next, there’s the suggestion that the growth model has now run its course in its home market. The lack of online presence also presents a risk, especially as many people seem disinclined to hit the high street for new clothes.
Safety in numbers
Then again, the fact that Associated British Foods has its fingers in a number of pies (it also has Grocery, Ingredients and Agriculture divisions) arguably gives it the sort of earnings diversification that many of its index peers lack.
The company’s intention to double the number of Primark stores it trades from in the US to 60 by 2026 could also work out well if (and that’s a giant ‘if’) the tariff tantrum fizzles out over the next few months.
The dividend yield, while not huge at a little over 3%, might convince some holders to stick around for the recovery too.
Fairly priced
Taking all of this into account, I suspect many value hunters are already running the rule over this company. It might not be a screaming buy just yet, but the current price tag does seem to reflect the company’s uncertain near-term outlook.
If the economic headlines turn even slightly positive, I reckon those who consider starting a position now might be rewarded.
