Shore Capital returns AB Foods to 'buy' despite H1 disappointment

(Sharecast News) - Shore Capital has returned Associated British Foods to a 'buy' rating after a period of review, applauding the company for tacking action to improve problem areas within the business. The broker had placed the retail and food conglomerate under review following its first-half results in late-April, in which it reported that revenues fell 2% and adjusted pre-tax profit slumped 10%.

Shore Capital highlighted some areas of "robust progress", more than offset by a number of disappointments, including within UK bread (Allied Bakeries), Spanish sugar (Azucarera) and bioethanol (Vivergo).

"Post the update, we cut FY25F pre-tax profit and adjusted EPS by 5.8% to £1.684bn and 173.5p, far from ideal, which caused us to pause and reflect on the bull case," the broker said in a research note.

"However, after a period of reflection, we see more to like than not in ABF's medium to long-term investment thesis, with high-quality assets, a very strong balance sheet, a multitude of growth opportunities and a building record of shareholder-friendly capital allocation."

Shore Capital said that AB Foods is "now more assertively dealing with current problems (on the whole).

The stock has fallen by around 9% since the interim results were announced on 29 April, but trading at a EV/EBITDA multiple of 7.2 and a price-to-earnings multiple of 12.0, falling to 5.9 and 9.6 for the fiscal year ending September 2027.