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26 November 2012
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page.
Martin Deboo +44 (0)20 7597 5044
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AB Foods (ABF.L)
AB Foods (Hol d - TP: 1400p)
United Kingdom | Food Producers
Primark valuation revisited (again)
1450p 1400p
Despite post-prelims sidegrades, the shares continue their climb. With the
quantum of profit in Sugars and the quantum of value in Primark the only two
debates worth having, we focus on the latter in this note. While we are bullish
on the prospects for Primark, we think that the 12-13x EBITDA that the share
price is now apparently discounting is full and fair. Our 12-month SOTP price
target rises to 1400p, but this adds up to a signal to take some profits for us.
Martin Deboo +44 (0)20 7597 5044
Caution confounded, again. ABF continues to confound our caution (and
Hold reco) with the shares ahead of the FTSE 100 over 1, 3 and 6 months,
despite sidegrades post the prelims on Nov 6. Intensely frustrating for us. But
we are where we are and the share price starts tomorrow, as we like to say.
Rising sentiment on Primark the driver? Primark impressed again at the
prelims and we think that it is renewed positive sentiment here that is driving
the shares. Our modelling suggests that the embedded Primark Enterprise
multiple has expanded by 70% since early 2011 and that Primark is now being
implicitly valued at parity with H&M and Inditex.
Looking fully valued to us. The extreme bull case on Primark, as we
understand it, is that business is set for sustained dynamic growth and is worth
the 20+times EBITDA/40+ times earnings multiples that attached to its close
analogue H&M in its late 1990s’ growth heyday.
However the late 1990s was – well – the late 1990s and buying into H&M at
such high multiples was an act of folly, judged with hindsight.
Consider taking profits? More sober counsels argue to us that a prospective
EV:EBITDA of 12-13x is full and fair for Primark, even in the face of such good
prospects and returns. We remain admirers, but cautious Holders, at this level
and would be inclined to take some profits on the back of recent momentum.
Financials and valuation Year end: 30 September Price Performance
Source: Company accounts/Investec Securities estimates Source: FactSet
HOLD
Price: 1450p
Target: 1400p (prev: 1300p)
Forecast Total Return: -1.3%
Market Cap: £11bn
EV: £12bn
Average daily volume: 937k
2011A 2012A 2013E 2014E 2015E
Revenue (£m) 11,065 12,252 12,776 13,499 14,216
EBITDA (£m) 1,238 1,471 1,530 1,633 1,731
EBITA (£m) 921 1,077 1,130 1,206 1,282
PBT (normalised) (£m) 836 974 1,032 1,115 1,204
Net Income (normalised) (£m) 585 688 728 788 852
EPS (normalised & continuing) - FD (p) 74.2 87.2 92.2 99.7 107.6
FCFPS - FD (p) (21.4) 55.0 47.6 59.0 71.4
DPS (p) 24.8 28.5 30.4 32.9 35.5
PE (normalised) (x) 19.5 16.6 15.7 14.5 13.5
EV/sales (x) 1.1 1.0 1.0 0.9 0.9
EV/EBITDA (x) 10.1 8.5 8.2 7.6 7.2
FCF yield (%) (1.5) 3.8 3.3 4.1 4.9
Dividend yield (%) 1.7 2.0 2.1 2.3 2.4
1,000
1,050
1,100
1,150
1,200
1,250
1,300
1,350
1,400
1,450
1,500
Nov-11 Feb-12 May-12 Aug-12
1m 3m 12m
____________________________Price 5.5 9.1 33.6
____________________________vs. FTSE All Share 5.4 7.8 17.0
Page 2 | 26 November 2012 | AB Foods
Primark to the fore again ABF continues to take centre stage as a stock market darling. We continue to sit in
the wings, licking our wounds and ruing our caution, having been Holders of the
stock since mid-September 2011, a period during which it has out-performed the
FTSE 100 by over 20%. Ouch.
Our initial folly was to underestimate the room for upgrades on ABF’s Sugars profits
(40% of FY13E EBITA), which is what we think was driving the shares during Q4
2011 and H1 2012. But buoyant EU sugar prices now look to be factored in, more or
less. And there is relatively limited room for debate on Sugars valuation given that
Ilovo (c. 25% of Sugars EBIT) is a traded instrument and given that Suedzucker
(Rec: Not rated) provides a reasonable public market proxy for the rest.
So once again it is Primark (37% of FY13E EBITA) that seems to be powering the
ABF story. Here, and in contrast to Sugars, near-term profits are reasonably
forecast-able. But there is much more room for debate on valuation, given the
dynamic character of Primark’s growth and relatively broad range of both historic
precedents and contemporary benchmarks. So let’s focus our firepower here.
Primark getting handsomely re-rated? The market’s valuation of Primark remains embedded in its wider valuation of the
ABF Group and its diverse range of businesses.
We can however throw some light on this embedded valuation by running our
customary ‘dynamic SOTP’ model backwards. The essence of this approach is to
allow the value of Primark to be the ‘flex factor’ that reconciles to the prevailing
share price, after valuing the rest of ABF on a consistent basis.
Exhibit 1: Primark embedded prospective EV:EBITDA multiple vs. traded benchmarks
Source: FactSet; Investec Securities analysis & estimates
4x
5x
6x
7x
8x
9x
10x
11x
12x
13x
14x
Primark (implied) H&M Inditex M&S Next
We continue to sit in the wings on ABF,
having been Holders of the stock since
mid-September 2011
We had been underestimating both the
room for upgrades on Sugars and for a re-
rating on Primark
We now think the valuation of Primark
needs looking at again
We try to estimate the market’s
embedded valuation of Primark
Page 3 | 26 November 2012 | AB Foods
Exhibit 1 highlights this analysis. It suggests that, relative to its recent valuation
nadir in March 2011, when the Primark enterprise multiple fell to 7.4x on the back of
cotton price worries, the multiple has now re-expanded by 70%, to 12.7x. As Exhibit
1 shows, this now puts Primark on broad valuation parity with European peers H&M
(Rec: Not Rated) and Inditex (Not Rated) and at a substantial premium to UK peers
M&S (Sell) and Next (Hold).
The analysis in Exhibit 1 is central to our thinking and we are sensitive to the fact
that it looks suspiciously precise, given that Primark is not a traded instrument. So
let us explain it a bit.
We start with ABF’s daily enterprise valuation, defined as its daily market cap plus
our forecast of net debt and the (small) pension deficit on a daily rolling basis. We
then subtract the value of ABF’s Ilovo stake, based on Ilovo’s daily market cap, then
add the capitalised value of the central costs. This gets us to the daily enterprise
value of ABF’s trading Divisions ex. Ilovo. We then value the Divisions ex. Primark
on the basis of daily prospective EV:EBITDA multiple of some relevant benchmarks,
within which the choice of parity with Suedzucker for Sugars ex. Ilovo, and a 40%
discount to Nestle for Grocery, are the key ones. That leaves the value of Primark,
which we re-express as a multiple of prospective rolling EBITDA per our forecasts.
Readers are free to disagree with our valuation benchmarks and there is therefore
legitimate debate over the average ‘height’ of the Primark multiple in Exhibit 1. But
given that our valuation benchmarks are consistently applied over time, and reflect
daily traded multiples in the marketplace, there can be less debate over the trend in
In fact Exhibit 1 may be under-stating the extent of Primark’s multiple expansion if
one takes the view that the market’s embedded valuation of ABF’s Grocery and
Ingredients businesses has been under-performing our chosen benchmarks of
Nestle and ADM respectively, which we would argue they have.
Is the Primark valuation still too cautious? The case of
H&M in the late 1990s Rapid multiple expansion notwithstanding, we are alive to the potential for a bull
case on Primark beyond our estimated 12.7x prospective EBITDA.
This bull case, if we understand it correctly, is that retail concepts undergoing
dynamic periods of growth, particularly international growth, deserve to trade on
high premium multiples. The case rests in particular on the valuation dynamics of
H&M, the Swedish-domiciled value retailer, during its period of rapid expansion in
the late 1990s. This is of course a highly relevant and compelling precedent for
Primark, given that it competes in the same market segment as H&M and is
arguably run on the same sort of ‘managing for long-term value’ principles as its
Scandinavian peer.
Exhibit 2 looks at the long-run trend in the consensus prospective PER and
EV:EBITDA multiples for H&M since the mid-1990s (EV:EBITDA data is only
available from 1999 onwards). As can be seen, H&M went through a period of
explosive multiple expansion from 1995 onwards. At its valuation peak in January
2000, it traded on 67x earnings and 41x EBITDA.
The first and obvious point to make here is that these multiples were achieved in a
rapidly rising market in a period that was, with hindsight, one of extreme value
irrationality. Sales, and growth in sales (as opposed to profit, cash flow or capital
returns), was the only performance metric worthy of consideration. Profit multiples
decoupled from their long-run trends with the result that the FTSE 100 was trading
on 26x earnings, as opposed to 11x now, albeit with a different mix of constituents.
We think that Primark’s embedded
multiple has expanded sharply, to 12-13x
EBITDA
While we think there is room to debate
the absolute valuation on Primark, the
rate of multiple expansion is hard to
argue against
The bull case on valuation from here is
predicated on the valuation of H&M
during its period of sharp expansion in
the late 1990s
At the peak of this period H&M traded on
67x earnings and 41x EBITDA
These multiples were of course achieved
in a rapidly rising market
Page 4 | 26 November 2012 | AB Foods
Exhibit 2: Prospective consensus PER & EV:EBITDA multiples for H&M; 1995-
Source: FactSet; Investec Securities analysis
So we are in a much more sober period and the verdict of hindsight is that it would
have been an act of total folly to invest in H&M at 67x earnings in January 2000.
But that is not to say that there is probative value for Primark in the H&M
experience. While the absolute multiples it achieved were off the scale, it delivered
(and continues to deliver) genuine and durable growth.
So how does what H&M was delivering since the late 1990s compare to what
Primark is delivering now?
The six charts in Exhibit 3 lay out the evidence. The visual logic of each chart is to
look at long-run (since the early 1990s) performance of H&M and then to
benchmark Primark’s current performance against it (the flat red line on each chart).
Our observations are as follows:
Sales growth at H&M in the late 1990s (be it total or LFL1) was substantially
ahead of Primark now (of the order of 2-3x)
Operating profit growth was also well ahead (of the order of 2x), apart from
2000 when higher depreciation on new stores and price discounting hit profits
Returns on capital employed were generally somewhat lower than what
Primark is delivering now
H&M’s rate of store openings was substantially higher than Primark (c. one
and half times as high) and H&M was also internationalising faster at that point
1 Note that H&M didn’t report comparable store sales until 2006 and has never reported selling space. We therefore
rely on the rate of increase in sales per store prior to 2006, but concede that this is a crude proxy for true LFL at
best
0 x
10 x
20 x
30 x
40 x
50 x
60 x
70 x
80 x
PER EV:EBITDA
We compare what H&M was delivering in
the late 1990s with what Primark is
delivering now
Sales growth, profit growth and store
expansion were ahead of Primark now,
but ROCE was behind
Page 5 | 26 November 2012 | AB Foods
Exhibit 3a: H&M total sales growth at constant currencies Red line is recent Primark level
Exhibit 3b: H&M ‘LFL’ sales growth1 Red line is recent Primark level
Source: H&M; Investec Securities analysis & estimates Source: H&M; Investec Securities analysis & estimates 1 Growth in sales per store prior to 2006, comparable store sales since
Exhibit 3c: H&M operating profit growth Red line is recent Primark level
Exhibit 3d: H&M return on capital employed (lease-adjusted)1 Red line is recent Primark level
Source: H&M; Investec Securities analysis & estimates Source: H&M; Investec Securities analysis & estimates 1 Adjusted for operating leases assuming reported rents and an assumed 6.5%
yield. Rents prior to 2000 estimated on the basis of a constant proportion of sales
Exhibit 3e: H&M annual growth in number of stores Red line is recent Primark level
Exhibit 3f: H&M number of countries present Red line is recent Primark level
Source: H&M; Investec Securities analysis & estimates Source: H&M; Investec Securities analysis & estimates
0%
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Page 6 | 26 November 2012 | AB Foods
What this says to us in the round is that, in the late 1990s, H&M was a substantially
stronger ‘growth story’ than Primark is now. The only metric on which Primark now
bests H&M then is on capital returns (and we’re not sure anyone was looking too
hard at those in 1999).
So we would argue that the combination of exceptionally strong growth (in both
sales and profit) plus exceptionally bullish market conditions was what led to H&M’s
sky high valuation in the late 1990s. We would accordingly be cautious of reading
that into Primark now.
A DCF approach says that market has it about right
on Primark Our observation thus far is that Primark has undergone a substantial re-rating and is
now in the Premier League of European international retailers in terms of Enterprise
valuation. While it is still a long way short of H&M in its heyday, the hard evidence is
that it is falling some way short of H&M’s delivery at that point and in any case is
being valued under a very different market mindset.
But there is clearly room for debate beyond the benchmarks. We therefore think it’s
appropriate to conduct a Discounted Cash Flow (DCF) valuation as a sanity check
on our thinking. The summary output from this exercise is shown in Exhibit 4.
Exhibit 4: Summary output from a DCF valuation of Primark
FY13E FY22E
Store numbers 255 435
Average selling space (m. sq. ft) 8.6 16.5
Sales £4.0bn £11.7bn
Operating margin 10.4% 10.9%
EBITDA £567m £1725m
EBITA £415m £1279m
Critical assumptions LFL growth 3%
Capex:sales 7% Investment in NWC:sales 2% Tax rate 26% Discount rate 10% Terminal EV:EBITDA multiple 8.0x
Enterprise valuation PV to FY22 plus terminal value £7049m
FY13E EBITDA £567m Implied EV:EBITDA 12.4x
Source: Investec Securities analysis & estimates
Our DCF values Primark at just over £7bn of enterprise value, being 12.4x FY13E
EBITDA. This is almost exactly in line with the current embedded valuation.
However, as in any DCF, it all comes down to the assumptions, so let us defend
and justify ours.
Our DCF is based on a 10-year explicit forecast period plus a terminal valuation.
Our base year is grounded in our current FY13 forecasts for Primark.
This says to us that H&M was a
substantially stronger ‘growth story’ than
Primark is now
A DCF approach provides a
complementary valuation perspective
The DCF values Primark at 12.4x FY13E
EBITDA, similar to our estimate of the
market’s embedded valuation
Page 7 | 26 November 2012 | AB Foods
Working backwards, we value Primark in the terminal year in line with Next’s current
multiple of 8x EBITDA, which we think is indicative of a mature, but high-performing,
format.
Between now and then, we assume a rate of store openings of 20 per annum,
which leads to a 70% increase in stores and a near doubling of average selling
space. This results in terminal sales of nearly £12bn (3x now), reflecting new space
plus a 3% LFL growth rate through the forecast period.
EBITA more than triples, to close to £1.3bn, reflecting the above plus modest
margin expansion. This in turn reflects some economic recovery plus economies of
scale.
In terms of cashflow, we assume a high rate of capex:sales during the forecast
period (7%), reflecting the rate of store openings. Capex:sales in FY12, a year in
which 19 new stores were opened, was 9%, being 2.5x the depreciation charge.
We assume net investment in net working capital, reflecting recent ABF
commentary on this point (ABF have observed that they pay suppliers relatively
quickly in order to secure better prices and service levels. We have no quibble with
this).
As with all DCF exercises, we think the assumptions are as educative as the output.
In a nutshell, our model reconciles to something like Primark’s current market
valuation. In order to justify that, we have assumed:
A sustained rate of store openings over 10 years at a higher rate than Primark
have recently achieved organically (admittedly one should expect step-change
acquisitions a la Littlewoods looking forward, but ABF will pay a control
premium for those)
LFL sales growth at the current rate, sustained for 10 years
Modest operating margin expansion
Levels of capex and working capital investment commensurate with a high
growth proposition
A terminal valuation commensurate with a mature but high performing retailer.
Note also that our model is implicitly assuming 100% probability of this performance
being delivered. Experience in the retailing industry speaks to the contrary,
however, particularly when international expansion is involved.
The valuation is of course sensitive to the assumptions. By way of illustration, a one
percentage point higher LFL or a one percentage point lower WACC would raise the
EBITDA multiple by one turn. Five more store openings on average per annum
would raise it by one and a half turns.
But what all says to us is that, despite the magnitude of the terminal metrics and the
growth rates, the market is getting it about right at 12-13x EBITDA for Primark.
Setting a 1400p price target and staying Holders. A
moment to take profits? Readers will have got the message by now that our mindset on ABF remains
cautious. That is a caution that has proved to be misplaced over the past 12
months. But we are where we are and have already noted that the shares have
risen by 20% relative to the FTSE during that period. So there is now quite a bit of
belief in the valuation.
Exhibit 5 brings this into focus by looking at ABF’s prospective PER multiple relative
to the FTSE 100. In common with many stocks in our coverage, ABF is more or less
at its relative valuation high (a 35% premium). But unlike the likes of BAT and
Unilever, ABF is not a homogenous business and embraces a number of lower
quality and or hard-to-forecast earnings streams, not least in Sugars.
The DCF rests on what we think are
suitably aggressive and internally-
consistent assumptions
The exercise says to us that the market is
getting it about right on Primark
Our mindset on ABF remains cautious
overall
ABF’s relative PER is also sending a
cautious signal
Page 8 | 26 November 2012 | AB Foods
Exhibit 5 also shows that high relative valuations – even during recent years when
Primark has been a prime factor – have proved vulnerable to reversals. For
example, in January 2011 (when bad weather led to a small profit warning in
Sugars) and October 2011 (when the market rallied and ABF under-performed for a
period).
Exhibit 5: ABF consensus prospective PER relative to the FTSE 100 ex. Financials, resources & consumer staples
Source: FactSet; Investec Securities analysis
So we can’t help maintaining our caution on ABF: as we argue in this note Primark
is, we think, fairly and fully valued. Sugars we haven’t written about today, but our
worries about profits in that business beyond FY13 persist. Grocery we expect to
recover from FY12’s travails but that assumption is in our numbers and, it would
appear, those of the market. Ingredients and Agriculture remain a rounding error.
Our proprietary SOTP model is indicating a 12-month price target of 1400p in round
numbers and we adopt that as our formal price target today. Our target price
increase from the previous 1300p reflects i.) out upgrade of Primark profits (relative
to an overall ‘sidegrade’ for the Group. This increases the proportion of profit on the
highest valuation multiple ii.) our decision to return to our earlier policy of basing
Primark’s valuation on the average of H&M and Inditex, rather than just the former.
H&M’s multiples have been compressing recently on weaker trading results,
whereas Inditex has been rising. As weak trading hasn’t been an issue at Primark
we think it is fairer to track the average rather than H&M alone.
Despite our caution we are not inclined to argue for a formal sell/short
recommendation on ABF. The shares are in fair valuation range per our model,
albeit with some downside. A formal sell on Investec’s criteria would require a target
value of c. 1270p per share, which we don’t think is likely. Finally, we see no
obvious near-term negative catalysts: Primark looks to be trading well (c.35% of
profits). UK sugar profits (c. 15% of the total) are largely locked in for the coming
0
20
40
60
80
100
120
140
160
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
We increase our price target to 1400p
We are not persuaded to move to a sell
recommendation but do see some
potential to take profits at this level
Page 9 | 26 November 2012 | AB Foods
year. Australia grocery is coming off the ropes and should start to benefit from
recent restructuring investment.
But we think there is an argument for a bit of profit-taking on recent strength and
remain in the cautious Holders camp.
Exhibit 6: Risks to our price target of 1400p
Division/line item What have we assumed? What are the risks?
Sugars, particularly EU An EU sugar price of €760/tonne in the UK in FY13, falling to €700/tonne in FY14. A price of €720/tonne in Spain in FY13, falling to €680/tonne in FY14
We think UK prices have been substantially locked in for FY13 but there remains some risk in Spain in H2 FY13 due to shorter-term contracting
A UK beet crop of c.1.15 m tonnes in FY13 and a 17.5% sugar extraction rate
The crop is in the process of being harvested and remains sensitive to both field yields and extraction rates
Primark 4% LFLs in FY13, 11% sales growth from new space (13 new stores)
LFLs are sensitive to the consumer outlook and competitor actions. Flagship store openings have the potential to exceed or undershoot forecasts
A 20bps increase in operating margins in FY13 Principal cost exposures are to cotton, store staff wages and Asian outsourced labour. We expect these to be containable in FY13
Grocery Reversal of £40m of restructuring charges in FY13, slightly increased underlying margins and c.3% LFL sales growth
Consumer demand for groceries in the UK and worldwide remains febrile
UK wheat prices are a major uncertainty in ABF's bread business
Australia may continue to prove problematic
Other Divisions Only modest growth in profits in Ingredients and Agriculture in FY13, from a low base
While competitive pressures persist, Ingredients profits are at an historic low and the business is under new management
Cashflow, net debt & financing costs Net debt falling by c. £50m in FY13 and a further £180m in FY14 on rising EBITDA and falling capex
We think ABF is soundly financed (net debt is c.0.9x EBITDA) and see financing risk as relatively immaterial
A net interest rate on net debt of 6%
Exchange rates A $ fx rate of 1.60 in both FY13 & FY14 c.50% of Group profits arises from outside the UK, so fx is a key sensitivity
A € rate of 1.25 in both FY13 & FY14 The € is a key sensitivity in Sugars as both sales and costs are denominated in €
Tax We follow company guidance of a 25.5% effective tax rate
The tax rate is sensitive to both the geographic mix of profits and changes I local corporate tax rates
Source: Investec Securities
0
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Page 10 | 26 November 2012 | AB Foods
Summary Financials (£m) Year end: 30 September
Source: Company accounts, Investec Securities estimates
Income Statement 2011 2012 2013E 2014E 2015E
Revenue 11,065 12,252 12,776 13,499 14,216
EBITDA 1,238 1,471 1,530 1,633 1,731
Depreciation and amortisation -317 -394 -400 -427 -449
Operating profit 921 1,077 1,130 1,206 1,282
Other income - - - - -
Net interest -85 -103 -98 -91 -78
Share-based-payments - - - - -
PBT (normalised) 836 974 1,032 1,115 1,204
Impairment of acquired intangibles -83 -100 -113 -110 -106
Non-recurring items/exceptionals 5 -113 0 0 0
PBT (reported) 758 761 919 1,005 1,098
Taxation -180 -178 -220 -241 -264
Minorities & preference dividends -36 -28 -29 -32 -35
Discontinued/assets held for sale - - - - -
Net income (normalised) 585 688 728 788 852
Attributable profit 542 555 669 732 799
EPS (reported) - FD (p) 68.8 70.3 84.7 92.5 100.9
EPS (normalised & continuing) - FD (p) 74.2 87.2 92.2 99.7 107.6
DPS (p) 24.8 28.5 30.4 32.9 35.5
Average number of group shares - FD (m) 788 789 790 791 792
Average number of group shares (m) 788 788 789 790 791
Total number of shares in issue (m) 791 791 791 791 791
Cash Flow 2011 2012 2013E 2014E 2015E
Operating profit 921 1,077 1,130 1,206 1,282
Depreciation & amortisation 317 394 400 427 449
Other cash and non-cash movements -147 -83 -58 -58 -58
Change in working capital -199 43 -50 -50 -50
Operating cash flow 892 1,431 1,422 1,525 1,623
Interest -88 -108 -95 -88 -75
Tax paid -156 -191 -242 -258 -279
Dividends from associates and JVs 9 10 6 6 6
Cash flow from operations 657 1,142 1,090 1,185 1,275
Maintenance capex -826 -708 -714 -718 -709
Free cash flow -169 434 376 467 566
Expansionary capex - - - - -
Exceptionals and discontinued operations 0 0 0 0 0
Other financials -51 56 0 0 0
Acquisitions -21 -43 -65 0 0
Disposals - - - - -
Net share issues -16 0 0 0 0
Dividends paid -212 -223 -262 -284 -308
Change in net cash -469 224 49 183 258
Net cash/(debt) -1,285 -1,061 -1,012 -830 -572
FCFPS - FD (p) (21.4) 55.0 47.6 59.0 71.4
Balance Sheet 2011 2012 2013E 2014E 2015E
Property plant and equipment 4,465 4,541 4,851 5,107 5,332
Intangible assets 1,893 1,769 1,726 1,650 1,580
Investments and other non current assets 405 412 436 460 484
Cash and equivalents - - - - -
Other current assets 2,887 2,887 0 0 0
Total assets 9,650 9,609 7,013 7,217 7,395
Total debt -1,285 -1,061 -1,012 -830 -572
Preference shares 0 0 0 0 0
Other long term liabilities -383 -344 -322 -306 -290
Provisions & other current liabilities -1,763 999 1,049 1,099 1,149
Pension deficit and other adjustments -44 -95 -61 -26 11
Total liabilities -3,475 -501 -347 -62 298
Net assets 6,175 9,108 6,666 7,155 7,693
Shareholder's equity 5,748 5,834 6,272 6,753 7,282
Minority interests 427 387 394 402 411
Total equity 6,175 6,221 6,666 7,155 7,693
Net working capital 1,260 4,022 1,185 1,235 1,285
NAV per share (p) 726.7 737.5 792.9 853.7 920.6
Page 11 | 26 November 2012 | AB Foods
Selection.Ta bles(1). Range.Fiel ds.Update
Calendarised Valuation Year end: 30 September
Source: Company accounts, Investec Securities estimates
Ratios and Metrics Year end: 30 September
Source: Company accounts, Investec Securities estimates
2011 2012 2013E 2014E
Calendar PE (x) 19.2 16.4 15.4 14.3
Calendar Price/NAVPS (x) 2.0 1.9 1.8 1.7
Calendar EV/sales (x) 1.1 1.0 1.0 0.9
Calendar EV/EBITDA (x) 9.9 8.4 8.1 7.6
FCF yield (%) (0.1) 3.7 3.5 4.3
Dividend yield (%) 1.7 2.0 2.1 2.3
Ratios and metrics 2011 2012 2013E 2014E 2015E
Revenue growth (y-on-y) (%) 8.8 10.7 4.3 5.7 5.3
EBITDA growth (y-on-y) (%) 0.4 18.8 4.0 6.8 6.0
Net income (normalised) growth (yoy) 2.7 17.7 5.8 8.3 8.1
EPS (normalised) growth (y-on-y) (%) 2.7 17.6 5.7 8.1 8.0
FCFPS growth (y-on-y) (%) (13.5) 24.0 21.0
NAVPS growth (y-on-y) (%) 8.6 1.5 7.5 7.7 7.8
DPS growth (y-on-y) (%) 4.0 15.2 6.7 8.1 8.0
Interest cover (x) 10.8 10.5 11.5 13.2 16.4
Net debt/EBITDA (x) 1.0 0.7 0.7 0.5 0.3
Net debt/equity (%) 20.8 17.1 15.2 11.6 7.4
Net gearing (%) 17.2 14.6 13.2 10.4 6.9
Dividend cover (x) 3.0 3.1 3.0 3.0 3.0
EBITDA margin (%) 11.2 12.0 12.0 12.1 12.2
Operating profit margin (%) 8.3 8.8 8.8 8.9 9.0
ROE (%) 10.2 11.8 11.6 11.7 11.7
ROCE (%) - - - - -
NWC/revenue (%) 11.4 32.8 9.3 9.1 9.0
Tax rate (normalised) (%) 24.5 24.8 25.0 25.0 25.0
Tax rate (reported) (%) 23.7 23.4 24.0 24.0 24.0
Page 12 | 26 November 2012 | AB Foods
Disclosures
Analyst certification Research recommendations framework
Each research analyst responsible for the content of this
research report, in whole or in part, and who is named
herein, attests that the views expressed in this research
report accurately reflect his or her personal views about
the subject securities or issuers. Furthermore, no part of
his or her compensation was, is, or will be, directly or
indirectly, related to the specific recommendations or
views expressed by that research analyst in this research
report.
Third party research disclosures
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Investec Securities bases its investment ratings on a stock’s expected total return over the next 12 months (with
total return defined as the expected percentage change in price plus the projected dividend yield). Our rating bands
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Source: Investec Securities estimates
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Company disclosures
Key: Investec has received compensation from the company for investment banking services within the past 12 months,
Investec expects to receive or intends to seek compensation from the company for investment banking services in the next 6
months, Investec has been involved in managing or co-managing a primary share issue for the company in the past 12 months,
Investec has been involved in managing or co-managing a secondary share issue for the company in the past 12 months,
Investec makes a market in the securities of the company, Investec holds/has held more than 1% of common equity securities
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Expected total return
12m performance Count % of total Count % of total
Buy greater than 10% 195 60% 88 45%
Hold -10% to 10% 103 32% 16 16%
Sell less than -10% 27 8% 1 4%
All stocks Corporate stocks
AB Foods Marks & Spencer Next
Page 13 | 26 November 2012 | AB Foods
Recommendation history (for the last 3 years to previous day’s close)
AB Foods (ABF.L) – Rating Plotter as at 23 Nov 2012
Source: Investec Securities / FactSet
Next (NXT.L) – Rating Plotter as at 23 Nov 2012
Source: Investec Securities / FactSet
Marks & Spencer (MKS.L) – Rating Plotter as at 23 Nov 2012
Source: Investec Securities / FactSet
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
Buy Hold Sell Not Rated
Price Target
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
3,000
3,200
3,400
3,600
Buy Hold Sell Not Rated
Price Target
020406080
100120140160180200220240260280300320340360380400420440
Buy Hold Sell Not Rated
Price Target
Page 14 | 26 November 2012 | AB Foods
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