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Associated British Foods reaps benefits of conglomerate structure

by LLB Editor
3rd Nov 20 10:08 am

Associated British Foods is the latest in a growing trend for companies to announce better than expected results, perhaps showing that management teams were too pessimistic coming out of the first lockdown. Sadly, life has changed once again with ABF’s Primark stores being affected by new lockdown restrictions in various parts of the world, so its management had every right to be cautious earlier this year.

AJ Bell’s Russ Mould said: “The company’s results are somewhat irrelevant given the new restrictive backdrop as the figures are backward-looking. It is now having to play a waiting game, hoping that the current lockdown conditions will ease by early December so it can shift all the Christmas-themed products currently sitting on the shelves.

“Retailers are highly dependent on the last few months of the year to sell products and those like Primark with no internet presence are going to be left out in the cold. It all comes down to the ability to survive a bleak winter and ABF seems confident it has the financial resources to come out the other side intact.

“Over the years people have questioned why ABF has continued to operate a conglomerate structure, running a clothing business alongside food and agricultural interests. The diversification benefits are now coming into play with ABF in a much better position than many of its clothing peers because it has other business activities to fall back on.

“ABF is taking a long-term view and continuing with expansion plans across the business, while at the same time being prudent with its financial resources and not paying a dividend.

“We might look back at the current lockdown and realise it was only a very short-term disruption and so companies able to crack on now and keep planning for future growth are likely to reap the benefits down the line. However, no-one knows how long the lockdown will last and so ABF is right to remain cautious about near-term expectations for trading.”

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