The extraordinary success of the budget Primark clothing chain has often diverted attention from the other brands of its owner, Associated British Foods, which include staples such as Ovaltine and Twinings, as well as agriculture and food ingredients and the huge operation including British Sugar.
This is a shame because, in many ways, that rest is rather more interesting. Ignoring Primark, sales to date in the UK were up 9 per cent in the first 40 weeks of the financial year, which ends in September. This, though the company never breaks it down, is probably half from new stores and half from like-for-like gains.
More importantly, the second-half margin, which had been expected to fall from the 10 per cent in the first half because the lower pound made importing clothes more expensive, will be about the same. Primark has been using its strong buying power, a global oversupply of clothes and the gains some suppliers enjoyed from the stronger dollar to mitigate the effects of that sterling decline.
In sugar, ABF has been gearing up to the scrapping this autumn of EU quotas by making its UK operation more efficient. The present financial year will see a huge bounce in profits from sugar to well over £200 million from just £34 million last time because the EU price is up by about a quarter.
The purchase of the remaining 49 per cent of the Illovo sugar operation in South Africa turns out to have been extraordinarily well timed, both for the exchange rate and because the industry was suffering the effects of drought, and Illovo will produce 1.7 million tonnes this year, an increase of 300,000 tonnes.
In grocery, the growth of those global food brands continued into the third quarter though the UK market for bread, where ABF owns Kingsmill, is still very competitive. Agriculture and ingredients are often seen as tail-enders but the story here is a shift into higher-margin products.
ABF will always be two separate businesses, Primark probably on an earnings multiple of 25 and the rest on about 15, but the growth will come both from store expansion overseas and better performance from the rest. The shares, an erratic market over the past year, finished up 75p at £29.97. On 24 times earnings they remain a solid buy.
MY ADVICE Buy
WHY The prospects for the rest of the group are often overshadowed by Primark, but sugar is set for a sharp turnaround in the current year
Dechra Pharmaceuticals
Dechra’s $200 million purchase of Putney in March last year was viewed by many as potentially a step too far. It was seen as a company that had expanded fast by acquisition after the 1997 buyout from Lloyds Chemists placing a huge bet for the first time on the US market in pet and animal medicines.
As luck would have it, the referendum and the fall in the value of the pound meant not only was it done at favourable exchange rates, the profits relocated from Putney were also swollen by those currency factors. The purchase is behind the 93 per cent jump in North American revenues in the year to June noted in the year end trading update at constant currency rates, rising to 125 per cent when you factor in the higher dollar.
Putney is still on track to double its stable of treatments on sale within the next five years from ten.
Dechra was primarily a distributor when it came out of Lloyds and was floated in 2000 but having sold much of the distribution side three years ago is now mainly a manufacturer and taking much of this in-house rather than contracting it out. So European sales, which have been hit by sensible limitations on the use of antibiotics in recent years, were up by 7 per cent at constant exchange rates but by 9 per cent if you take out that outsourcing.
The shares have always sold on a high multiple but have been unaccountably weak since the start of June. Off another 24p at £16.84, they sell on 22 times last year’s earnings and that weakness looks like providing a good entry point.
MY ADVICE Buy
WHY Expected growth from recent acquisitions
Ricardo
The past year has been a difficult one for the car manufacturers given the multiple uncertainties of Brexit, the scandal over diesel emissions and the US and UK elections, and their attention has been on how all this has impacted on their existing businesses. So it has been a challenging year for the passenger car consultancy side of Ricardo, with an unusually erratic flow of work from those manufacturers.
Fortunately, diversification into rail, energy and environmental consulting means that core passenger car work is now probably just 30 per cent of the total, a bit ahead of the engineering work for McLaren and Bugatti that is now ramping up. Take out the Bugatti contract won in June 2016, which was something of a one-off, and order intake in the year to end-June grew from £325 million last time to £360 million, and the closing order book was up by £9 million over the year to £240 million.
The shares, up 9½p at 779½p, have dropped back from above £10 in October on those automotive concerns and now sell on a very reasonable 14 times last year’s earnings.
MY ADVICE Buy
WHY Attractive multiple now shares have come back
And finally...
Syncona has featured here of late as a good way for private investors to gain exposure to very early stage life-science investments. The full-year figures to the end of March show a total return, including dividends, of 12.5 per cent in a year that saw its effective creation through the putting together of the original Wellcome Trust-backed fund with the old Bacit investment trust. Since then Syncona’s value has risen by 12.4 per cent and the forecast is that £75-150 million will be spent this year on expanding it.