In my search for the leading lights of the FTSE 100 sectors, today I’m turning my attention to our food producers, and I’m comparing the top three big ones — Unilever (LSE: ULVR) (NYSE: UL), Associated British Foods (LSE: ABF) and Tate & Lyle (LSE: TATE).
Despite being in the same FTSE sector, they really are three very different companies and they’re hard to compare.
But before we look at them individually, here’s a fundamentals snapshot:
| Associated British Foods |
Unilever | Tate & Lyle | |
|---|---|---|---|
| Year ended | Sep 2013 | Dec 2013 | Mar 2014 |
| EPS growth |
+13% | +3% | -2% |
| P/E |
18.3 | 19.2 | 11.8 |
| Dividend Yield |
1.8% | 3.5% | 4.1% |
| Dividend Cover |
3.09x | 1.48x | 2.05x |
| Year ending* | Sep 2014 | Dec 2014 | Mar 2015 |
| EPS growth |
+4% | +1% | -13% |
| P/E |
28.5 | 20.8 | 14.1 |
| Dividend Yield |
1.2% | 3.4% | 4.2% |
| Dividend Cover |
2.96x | 1.44x | 1.73x |
| Year ending* | Sep 2015 | Dec 2015 | Mar 2016 |
| EPS growth |
+4% | +9% | +6% |
| P/E |
27.2 | 19.3 | 13.3 |
| Dividend Yield |
1.3% | 3.6% | 4.4% |
| Dividend Cover |
2.92x | 1.46x | 1.75x |
* forecast
Perhaps the most striking thing there is the size of Associated British Foods’ forward P/E valuations — with ratios of 28.5 and 27.2 penciled in from forecasts for the next two years, they’re way ahead of the highly-valued Unilever and easily outstrip the long-term FTSE 100 average of around 14. What gives?
It’s fashion
Well, ABF has a secret weapon that is nothing to do with food — Primark! Yes, ABF owns the highly-profitable discount fashion chain, and it figures strongly in its annual profits. At annual results time in 2013, chief executive George Weston told us that “Grocery was much improved, Agriculture achieved record profits, Sugar was in line with our expectations and it was a remarkable year for Primark“.
In fact, Primark’s profits were up 44% after it increased its sales real estate by a further 10%.
Sweet stuff
Tate & Lyle is a very different proposition, and has been in a refocusing period of late. For the year ended March 2014, earnings per share slipped by 2% and is expected to fall a further 13% in the current year before recovering a little in 2016. But dividends have been maintained at yields above 4%.
And at full-year time this year, chief executive Javed Ahmed said that Tate was “well placed to deliver growth over the longer term“.
Both of these companies look like promising prospects for different reasons, but neither would personally appeal to me. There’s nothing that actually grabs me about Tate & Lyle, and I just can’t get my head around the highly-priced fashion business.
Boring is best
Unilever, of course, is heavily into household cleaning and personal care products in addition to its foodstuffs, and so it’s not a straight food producer either — and so is also hard to compare directly to the other two.
But overall, even with its relatively high P/E valuations, it’s the one I’d prefer to have in my portfolio for the next 20 years.
