Most FTSE 100 stocks are engaged in just one line of business. But this isn’t the case with Associated British Foods (LSE: ABF). I have long viewed its eclectic collection of businesses under one umbrella as a source of strength through diversification. However, with the share price down 40% over the last 10 years, is my loyalty misplaced?
Primark
By far the biggest source of revenue for the company comes from its retail operations. Value fashion/lifestyle retailer Primark has bucked the trend by building a thriving bricks and mortar business. Last year, it opened up eight new stores and has 459 across the globe.
The real growth story for Primark in H1 2025 came from central and eastern Europe where sales grew 21%. The US also showed good momentum, with sales up 17%. This was bolstered by the opening of its first store in Texas and a brand marketing blitz in the New York metro area.
However, the UK market, which accounts for nearly half of all sales, declined by 4%. As a result its total market share reduced from 6.9% to 6.7%.
Online presence
The company may blame a mild autumn for poor sales but I’m beginning to wonder if its lack of response to building a commercial online presence hasn’t help.
Click & Collect, which it began rolling out in 2022, is beginning to finally build momentum. It expects the service to be available in 187 stores by June, 80% of its UK store estate. However, it has no intention of branching out and offering a full online experience. Indeed, it continues to accelerate spending on store modernisation.
Grocery
Outside of Primark, most of the company’s diverse collection of internationally recognisable brands continues to perform well. One of the standout performers is Twinings. Black tea sales have been particularly strong. This all ties into its ‘wellness’ tea category of green, herbal and fruit variants. These have grown at a compound annual growth rate of 7% since 2022.
But its strength in many of its brands was offset by continued declining sales at Allied Bakeries, which manufacturers the Kingsmill brand.
Increasing operating losses at its bakery division has forced it into a strategic review. In the last week, rumours have emerged that it’s in talks to merge with rival Hovis. Whether a deal goes through or not, it has a mammoth task of arresting sliced bread sales to more speciality loaves.
Dividend
The business remains a reliable, if not spectacular, dividend payer. It currently yields 3.3%. It isn’t easy to forecast future payouts because so much of its returns are attributable to special one-off payments.
Saying that, its special dividends do tend to be very generous. Between 2023 and 2024, dividend per share increased by 50%. The interim dividend, which will be paid in July, is set at the same level as last year.
Despite the problems faced at individual businesses, I still believe the sum is better than its parts. It remains a conservatively-run, majority family-owned business with a strong balance sheet and low debt. It’s a classic buy-and-hold stock, in my books.
Over the years, the reinvested dividends, as well as a recent top-up share purchase, mean that it has now become one of my largest holdings. I feel it’s one to consider.
