What a difference a month or two makes. In December, Associated British Foods - owner of, among other things, fast-fashion retailer Primark - announced gloomily that tough times prevailed for the retail sector.
It reiterated that doom and gloom in January, when it frankly seemed a tad surprised that an unexpected boost in sales at its Primark division, of 4% on the year before, had helped lift group revenue by 2% in the 16 weeks to 5 January.
Today, in a trading update ahead of its half-year results statement due on 24 April, it seemed positively upbeat in comparison. What’s changed? Well, not all that much on the face of it.
ABF said for the six months to 2 March 2019 it expects to see growth across all segments of the business, bar the sugar side, which is still in the shadow of the vast EU sugar mountain that has been hampering sugar prices since last year.
Looking at Primark’s expected contribution, that isn’t all that much different either. Except there’s a generally upbeat tone evident in this pre-close update.
It says first-half sales at Primark are expected to be 4% ahead of last year, at both constant currency and actual exchange rates, driven by increased retail selling space partially offset by a 2% decline in like-for-like sales.
Rewind to January’s update and the same 4% growth was touted and profits were described as being “well ahead” on higher operating profit margins.
Today’s message seems almost identical. It says: “With a much higher margin, profit is expected to be well ahead of the same period last year. Early trading of the new spring/summer range has been encouraging.”
It went on to say that the UK has continued to perform well and managed to substantially increase Primark’s share of the total clothing, footwear and accessories market, with sales 2% ahead of last year.
The statement even said November’s low footfall had been offset by good trading in all other months, and like-for-like sales are expected to be level with last year in the first half.
US stores are trading well, but European sales, while expected to be 5% ahead of last year, with particularly strong sales growth in Spain, France, Italy and Belgium, are expected to show a 3% fall in like-for-like sales. Germany is the main culprit and the group said it has plans to reduce selling space at a small number of German stores.
The third string in ABF’s bow is its grocery division, which sells Ovaltine from here to Australia and Ryvita all over the world. Here too revenue and operating profits are expected to come in ahead of last year’s; even after a £12 million one-off hit related to the Twinings Ovaltine business.
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There’s no denying that Associated British Foods is an unusual and deceptively-named collection of businesses, that nonetheless beautifully demonstrates the benefits of diversification.
There are clearly plenty of issues that seem to endlessly arise across all areas of the business and as chairman Michael McLintock made investors aware at the annual general meeting, ABF is a vast ship to steer through tricky consumer waters.
However, with absolutely zero scope for say, the sugar and fast-fashion worlds to collide, or for sales of tea (which needs a warm, humid climate) and the grapes used by its Acetum brand (which favour warm, dry weather) to suffer a bad year simultaneously, the in-built weaknesses in each of the varied areas of the business, all offset one another when need be.
As an investor, keeping your own investment portfolio as varied as possible ensures that you can weather whatever storms pass your way. Managers of the most successful funds stick to this quite doggedly. For instance the Lindsell Train UK Equity Fund will have at least 25 holdings at any given time, while the Fidelity Special Situations Fund currently has 85. And crucially, only two of these representing more than 5% of the fund’s assets.
If you’re a novice investor or don’t have the time to build your own individual share portfolio with our share dealing service, then a good starting point is the Fidelity Select 50 Balanced Fund. Launched a year ago, it holds around 30 different funds, each of which, of course, holds tens of individual investments. These funds invest in a wide range of the world’s main share and bond markets, plus some property and commodity investments for further balance.
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