Trading well south of their £35.99 five-year peaks, this is an opportune moment to buy shares in Associated British Foods (ABF) at £26.97. This year should see profits rebound strongly as the conglomerate’s sugar earnings recover and Primark’s phenomenal store roll-out progresses.

Liberum Capital argues Associated British Foods ‘offers investors compelling exposure to secular growth trends in retail over the next 10 years’ via value-for-money fast fashion chain Primark. The investment bank estimates Primark can double sales and profits over the next five years.

While the UK consumer backdrop is uncertain, Primark would flourish should shoppers trade down. The on-trend clothing chain is primed for market share gains as it expands in continental Europe and builds a presence in the United States.

Primark’s sales grew 21% in the first half at actual exchange rates, buoyed by an 11% rise in new selling space. Though same-store sales were down in the Netherlands, affected by rapid selling space expansion, Primark delivered 2% like-for-like growth in the UK, bagging market share in tough conditions.

Admittedly, the clothing retailer does face a dollar sourcing headwind from sterling weakness which will crimp near-term operating margins.

Sweetening prospects

Associated British Foods’ sugar profitability is improving thanks to lower beet costs for its British Sugar subsidiary and rising EU sugar prices. The group’s Illovo business in Southern Africa is also benefiting from strong sugar production.

Dividend-paying Associated British Foods offers defensively-minded investors exposure to British brands with global potential. These include Kingsmill, Ryvita, Dorset Cereals, Blue Dragon and Twinings Ovaltine, the latter taking market share everywhere from the US, Australia and France to Brazil and Vietnam.

Supported by a £200m net cash pile, acquisitions are augmenting growth; the FTSE 100 firm recently acquired the High 5 and Reflex Nutrition sports brands for £60m.

For the year to September 2017, Shore Capital forecasts continuing profit before tax of £1.22bn (2016: £1.07bn), ahead of further meaty rises to £1.36bn and £1.5bn in 2018 and 2019.

You’ll have to pay up to access Associated British Foods’ high-quality cash flow and earnings however. The shares trade on almost 23 times this year’s estimated earnings of 118.7p.

Growth and income investors should bag Associated British Foods at £26.97.

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