This FTSE 100 giant could be 49% undervalued

this ftse 100 giant could be 49% undervalued

Young happy white woman loading groceries into the back of her car

In the complex tapestry of the global food and retail sector, Associated British Foods (LSE:ABF)’s unique business model really stands out. Its vast array of operations presents an interesting opportunity for FTSE 100 investors.

Company background

Despite the name, Associated British Foods isn’t just a food company. It’s a conglomerate that dabbles in everything from sugar, yeast, and baking ingredients to owning one of the most popular fashion retail chains, Primark. This diversification is arguably Associated British Foods’ armour against market volatility. When one sector faces headwinds, another could thrive, providing a balance to the overall business.

There’s resilience in this variety. For example, when the retail sector was hit hard during the pandemic, the grocery segment saw an uptick in demand. This adaptability signals a robustness crucial for long-term investment. Additionally, the company continuously finds new growth avenues. Examples include geographic expansion, or tapping into trends like sustainable fashion and organic foods. For investors, this translates into multiple opportunities for a single investment.

Fundamentals

Assessing its financial health reveals a complex picture. Despite challenges like fluctuating commodity prices and widespread uncertainty, Associated British Foods has shown resilience. Its revenue streams, while varied, have generally trended positively, showcasing the company’s ability to navigate diverse market conditions.

The price-to-earnings (P/E) ratio at 16.1 times suggests there is still a decent amount of potential in the share price, where the average of the sector is 26.7 times. Similarly, the discounted cash flow shows the share price of £22.38 could rise by over 49% before the calculated fair value is realised. These values reflect the level of uncertainty in the economy, but could easily be an opportunity for long-term investors.

The company otherwise looks pretty healthy. It has a sustainable debt level, solid cash reserves, and a growing dividend yield of 2.0%.

What’s next?

The future looks good for the company. Despite the uncertainty for consumers, Associated British Foods seems to have a strategy that works, experienced management, and strong estimates for the coming years. With earnings expected to grow at 10.8% annually, investors will hope to see the share price moving higher over the coming years. With inflation and interest rates being one of the key fears in the market at present, businesses such as Associated British Foods that have control over prices, and a wide range of products, should be in a far better position than others.

Investing in Associated British Foods, however, is not without its risks. The company’s diverse operations expose it to sector-specific challenges. In retail, for instance, Primark faces intense competition and the whims of fashion trends, while the agriculture and food sectors are susceptible to volatile commodity prices and changing regulatory landscapes.

Global economic factors, such as currency fluctuations and trade policies, also impact its international operations. Moreover, consumer trends — especially in sustainability and ethical sourcing — are increasingly influencing purchasing decisions, posing both a challenge and an opportunity for Associated British Foods’ varied business segments.

Am I buying?

Investing in quality companies in the FTSE 100 with strong pricing power and diverse operations is one of my main focuses over the coming years. Despite the risks, I can’t look past the potential for growth in this company’s share price. I’ll be adding it to my watchlist.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report — 5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

More reading

Gordon Best has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods Plc. 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.

News Related

OTHER NEWS

FA confident that Man Utd starlet will pick England over Ghana

Kobbie Mainoo made his first start for Man Utd at Everton (Photo: Getty) The Football Association are reportedly confident that Manchester United starlet Kobbie Mainoo will choose to represent England ... Read more »

World Darts Championship draw throws up tricky tests for big names

Michael Smith will begin the defence of his world title on the opening night (Picture: Getty Images) The 2024 World Darts Championship is less than three weeks away and the ... Read more »

Pioneering flight to use repurposed cooking oil to cross Atlantic

For the first time a long haul commercial aircraft is flying across the Atlantic using 100% sustainable aviation fuel (SAF). A long haul commercial flight is flying to the US ... Read more »

King meets world business and finance figures at Buckingham Palace

The King has met business and finance leaders from across the world at a Buckingham Palace reception to mark the conclusion of the UK’s Global Investment Summit. Charles was introduced ... Read more »

What Lou Holtz thinks of Ohio State's loss to Michigan: 'They aren't real happy'

After Ohio State’s 30-24 loss to Michigan Saturday, many college football fans were wondering where Lou Holtz was. In his postgame interview after the Buckeyes beat Notre Dame 17-14 in ... Read more »

Darius Slay wouldn't have minded being penalized on controversial no-call

Darius Slay wouldn’t have minded being penalized on controversial no-call No matter which team you were rooting for on Sunday, we can all agree that the officiating job performed by ... Read more »

Mac Jones discusses Patriots future after latest benching

New England Patriots quarterback Mac Jones (10) Quarterback Mac Jones remains committed to finding success with the New England Patriots even though his future is up in the air following ... Read more »
Top List in the World