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We Need Food and Cheap Clothes even when Times are Hard. So Look at this Footsie Giant

By Malcolm Stacey | Thursday 8 November 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Hello, Share Dividers. I can't get my head around the fact that most of my wardrobe is supplied by a food giant. But the fact remains that Associated British Foods (ABF) owns Primark. And as anyone who shops in Primark knows, its stores burst with customers. This is not surprising because their togs are mostly extremely cheap.

I’m often told by posher friends that more upmarket stores are the place to buy gear that impresses. But I find Primark shirts, trousers and underwear can be stylish and not of the worst quality. Of course, full stores and cheap prices don't necessarily mean big profits due to margins. On the other hand loads of customers increases Primark’s power to bulk-buy its merchandise.

Analysts with at least three brokers viewed ABF’s latest figures optimistically. The shares are currently 2565p, having risen just over 4% as I write. But those brokers have given targets of between 2500p and 3500p. Yes, I know targets are only targets, but you never know. The price/earnings multiple by the way is a reasonable 16.8.

So far, we’ve talked about Primark, but of course, ABF is much bigger than that. It describes itself as a food, ingredients and retail group. And it has sales of £15.6 billion, 137,000 employees and operations in 50 countries across Europe, Africa, the Americas, Asia and Australia.

Twinings and Ovaltine are two of its brands. You’ll have also heard about Ryvita, Kingsmill and Silver Spoon. Talking about sugar, AB produces loads of the sweet stuff from sugar beet. And a possible headwind is that nutritionists are stepping up the fight to keep us away from it. Not to mention the new sugar tax. However, this company is big enough to absorb any shocks and we’ll never be able to do without food. While if times get tough we’ll be more attracted to cheaper duds.

And now the Punter’s Return is open.

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