Thursday tips round-up: ABF, ARM Holdings

24th Apr 2014 07:46

Associated British Foods (ABF), one of the few remaining conglomerates on the FTSE 100, yesterday released a strong first half trading update, including a six per cent increase in pre-tax profits. That result was slightly ahead of market expectations. Together with the announcement that the company's Primark unit is to enter the US retail space it sent the stock sharply higher. However, it should be pointed out that introducing a UK retail format in the US has proven the graveyard of many a British company, with the most recent victim having been Tesco. Nonetheless, ABF is highly cash generative and increasingly so. Cash from operations soared to £508m in the last reporting period, rising by £158m from the comparable period, despite heavy investments in opening new stores in Spain, France and the UK while at the same time lowering its debt levels. Even so, the shares are trading at a forward price-to-earnings multiple of 26.6 times profits, falling to 24.8 times next year, so it's hard to get too excited about the investment prospects at the company. The dividend is also covered almost three times by profits. It is a stock to have on the watchlist, The Daily Telegraph's Questor team writes. Nonetheless, they cannot be tempted to buy at these prices. Hold, Questor says. Shares of chipmaker ARM Holdings dropped following its latest earnings figures, but they have come far over the past year, rising to above £11 from just over 750p. Nevertheless, that stock price performance has come alongside greater risk, in the form of pronounced volatility. Investors focused on one particular aspect of the company's figures, its revenues from royalties on products sold using its chip technology. This income rose by only 8%. Yes, that beat the market, but not by much. Even so, the company is confident on the outlook for the second quarter. Reports from other companies in the global semiconductor supply chain, such as Taiwan Semiconductor, which uses ARM's technology, would seem to confirm that. The Asian firm is expecting an end to the current de-stocking cycle. On about 40 times' earnings the valuation seems fair enough, "but that volatility may discourage some investors", writes The Times' Tempus. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB