Associated British Foods is priced for apathy and ignorance

Operating results soar to new highs while trading multiples collapse to decades-lows

Dear Reader,

I think that the market has really dropped the ball on Associated British Foods in a truly bizarre way for an $17.8 billion USD market cap corporation.

Not only does no one care to look into this globally-diversified blue chip conglomerate, but as far as I can tell few even understand that it even is a conglomerate (i.e., not just a grocer — a sector which many investors prefer to avoid) in the first place: their business segments are 1) Primark (fast fashion), 2) Grocery, 3) Sugar (world’s second largest producer), and 4) Ingredients (largely baker’s yeast, of which it’s also the world’s second largest producer).

I’ve tried serving this idea on a silver platter to several skilled investors and no one bites. I am currently down 8% on a full 5% position and I am considering lobbying for an exception to increase this position.

Why is the market selling all-time operating results at a decades-low multiple?

I think the answer here is so boring that it’s just plain intellectually disappointing: it is listed in the U.K. and its name implies a focus on, well, foods. Like NGS 0.00%↑ , the company name is a misnomer and the market has distracted investors with many shinier objects.

Arrest your biases for one moment and consider these cold, hard facts:

• Associated British Foods closed out the LTM with an all time high EBIT of $1.9bb GBP.

• Primark accounted for 55% of LTM operating profit. Grocery scarcely accounted for a quarter.

• Over the last three years, capex has eclipsed d&a by $1.1bb GBP, driven primarily by growth investment in Primark and Sugar.

• Only 35% of operating profit is attributable to the U.K. 38% is attributed to Europe + Africa, 20% to the Americas, with the remainder in APAC.

• After years of stagnant share count, management has reduced the share count by over 5% while paying a 3.1% dividend plus a special dividend in the last 3 out of 4 years.

• You can buy this company, with substantial net cash and a strong working capital position, for 10.6x NTM consensus earnings.

I’m already tired of writing about this one so I’m ending it here. That’s all I need to know. Have at it.