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Why I’d buy shares in this FTSE 100 growth and recovery play right now – The Motley Fool UK

In April, I wrote an article pointing out the valuation of FTSE 100 growth company Associated British Foods (LSE: ABF) was the lowest I’d seen it in years. The firm has a defensive food business but it also owns fast-growing value fashion and lifestyle retail chain Primark.

Why this FTSE 100 growth company remains on track

The growth achievements and potential of Primark had previously been well accommodated by the market. Indeed, at one point, the earnings multiple was above 30. However, in lockdown, all the Primark stores were closed. And that was a big deal because, in 2019, the Primark business delivered around 60% of the company’s overall operating profit.

Naturally, the share price plunged when the crisis hit trading. And by the time of my April article, the forward-looking P/E rating was just below 14, based on City analysts’ estimates for a rebound in earnings. The stock looked like good value to me back then when the share price stood near 1,888p.

Happily, if you’re in the market for buying quality shares, the price hasn’t risen much since. It currently stands at 2,067p, as I write. And that’s well below the 2,700p or so just before Covid-19 hit the markets. Meanwhile, today’s pre-close-period trading update reveals to us that trading in the fourth quarter of the firm’s financial year has exceeded directors’ expectations.

Both the food and retail (Primark) divisions have been trading well. For example, the grocery sub-division saw increased retail sales volumes in the US, Europe and Australia. And in the ingredients business, higher demand for yeast and bakery products powered sales, particularly in the Americas and China. Meanwhile, the sugar sub-division delivered a “much-improved” profit year on year.

Strong trading

The Primark stores reopened during May, June and July and trading during the fourth quarter was “strong.” I reckon the successful re-opening of the store estate removes one of the major uncertainties surrounding the stock. But not only is Primark surviving, it’s also thriving too. The directors reckon in the latest four-week UK market data for sales in all channels, Primark achieved its “highest ever” value and volume shares for the time of year.

For the full trading year to 12 September, the company expects a “very strong” increase in the total adjusted operating profit for its Sugar, Grocery, Agriculture and Ingredients businesses compared to last year.  It seems the pandemic had little effect on that side of the firm’s operations. Meanwhile, adjusted operating profit for Primark is likely to be “at least” at the top end of the £300m-£350m range previously anticipated by the directors. That compares to £913m reported last year.

Primark has taken a hit because of the lockdown and ongoing changes to accommodate the pandemic. But retail operations are recovering strongly and I see the share as attractive as part of a diversified portfolio of quality shares. I’d buy.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!


Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Associated British Foods. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.



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