There are so many parts to Associated British Foods’ business that it is nigh on impossible that they can be firing on all cylinders at all times. This is a business that owns Primark, the value fashion chain, grocery brands such as Twinings and Ovaltine,sugar cane fields in Africa and abattoirs in Australia.
Not so long ago, ABF’s sugar division was causing the most headaches as the conglomerate contended with plummeting global sugar prices and a glut of supply in the European Union. Yesterday, though, all was sweetness and light in the sugar business and it was the once seemingly unstoppable Primark that was a slight cause for concern.
Having reported a small like-for-like sales drop of -1 per cent at the half-year, Primark’s first fall in more than a decade, the fashion chain has failed to fully recover in the second half. ABF said that for the full year to September 27 it expected Primark’s like-for-like sales to be down by 2 per cent after Christmas proved warmer than expected Christmas and Easter somewhat colder. Primark’s UK profit margins in the new financial year also would be lower as a result of the fall in sterling since the EU referendum. Primark sources most of its garments in dollars.
Nevertheless, ABF was at pains to note that Primark’s “price leadership” was key, which means that, for now at least, the group is going to take the hit on currency rather than passing on higher prices to customers. Analysts at Jefferies have suggested that weakening profit margins at Primark, which accounts for more than 40 per cent of ABF’s revenues, could leave the shares vulnerable to profit-taking in the near term.
Of course, there is more to Primark than mere currency movements. Only half of its revenue now comes from the UK and even though comparable sales are down it has still gained market share in Britain during the period. Expansion into Europe is on track. Primark is a very well-run business that keeps a keen eye on overhead costs and, with ABF’s strong balance sheet, it has more more than a little ballast to weather the currency storm.
Profits in the group’s sugar division will continue to pick up in the coming years, while its ingredients, grocery and agriculture divisions are generally holding their own. Recent sterling weakness may be causing hiccups, but as a long-term hold ABF is always a solid performer.
My advice Hold
Why Primark has a tough year ahead, but ABF will weather the storm
John Laing Infrastructure
In this post-Brexit world, there is a lot of talk about big government investment in roads, rail, power and the like and the John Laing Infrastructure Fund has called on Philip Hammond to give this a shot in the arm in his autumn statement.
The fund expects a slowdown in market activity, but says that an oversupply of capital seeking investment in infrastructure and a limited supply of projects means that the downturn will not last long.
The fund, spun out of the John Laing construction group in 2010, has struggled with a lack of opportunities in a subdued British market and increasingly is considering overseas investments. It buys infrastructure assets such as roads, schools and hospitals when they are finished and receives a fee from the government for running and managing them.
The UK represents 72 per cent of its portfolio, but the two biggest investments for the year were £85 million for a 40 per cent stake in a project to run escalators and doors at Barcelona’s Metro and a 100 per cent stake in Connecticut motorway service stations. It has its eye on Australia and Chile and has assets in the Netherlands, Finland and Canada. The downside is that weaker sterling may make it harder for the fund to invest abroad as bids overseas become more expensive.
The fundamentals remain, however, with a yield of just over 5 per cent and shares with a net asset value of £1 billion, or 113p per share. The dividend of 3.41p per share delivered a 12.6 per cent return for the half-year.
My advice Hold
Why Faces uncertainty, but opportunities abroad strong
Green Reit
We all know the Samuel Johnson line: “When a man is tired of London, he is tired of life.” Property brokers and developers in the City are holding on to those words after the Brexit vote as they insist that no European city will be able to rival London in terms of infrastructure, size, big buildings and even culture.
Time will tell, but that isn’t stopping European cities trying to lure big business, and that includes Dublin. If passporting rights are scrapped and financial companies do look to Ireland, one company ready to capitalise is Green Reit. The listed property investor, which invests in offices and industrial space in Ireland, has a €1.24 billion portfolio, with 360,617 sq ft of mostly office space under development in Dublin.
Regardless of whether companies go there, Green is a strong position. Gross rents are up 43 per cent, occupancy is at 98 per cent and prime office rents are at €55 per sq ft, with expectations of €65 per sq ft by the end of next year.
The company is ahead of dividend expectations because of a strong portfolio acquired over the past three years. The proposed payout is 4.6 cents per share, up 188 per cent and equivalent to a yield of more than 3 per cent.
My advice Buy
Why With or without Brexit assistance, this is a solid stock
And finally...
The club may not have qualified for the Champions League, but that hasn’t stopped the US-listed Manchester United delivering a 30.4 per cent rise in revenue to a record £515.3 million for the year to June. That rise was largely thanks to retail and merchandising revenue tripling to £97.3 million. The club recently spent £89 million for Paul Pogba, the France midfield player, to restore it to Europe’s footballing elite. Maybe that will help the share price, down 2 per cent in the past year compared with an 8.5 per cent gain by the S&P 500.
