CSS Partners FTSE350 Market Report

Market Report

08 December 2008

Associated British Foods PLC
ABF.L

Sector	Food producers
Last closing price (08/12/2008) (p)	652
52 week High/Low (p)	940.5/590
Market Cap (£bn)	5.23
Sector weight age by Market Cap (%)	12.15
Average Volume (mn)	1.8
P/E ratio (TTM)	14.59
Industry P/E ration (TTM)	5.35

TTM: Trailing Twelve Month

Daily chart (ABF.L)

Business background and investment rationale

Associated British Foods PLC can be categorised into four segments: grocery, primary food and agriculture, ingredients, and retail. The group has sales worldwide and manufacturing operations across Europe, North America, Asia, Australia and New Zealand.

Strong retail growth

In November the group announced full year results for 2008. Primark sales increased by 21% as a result of growth in the retail selling space, while like-for-like sales increased by 4% for the full year despite the weak trading in April when poor weather contrasted with last year’s warm weather and the benefit of Easter trading in the comparative period. The group opened 12 stores during the year, with five in Spain and four in the UK bringing the total to 181 outlets. ABF will be trading from 5.4 million sq ft of selling space, which is an increase of 13% over last year. As a consequence of continued growth, ABF will open a major new distribution centre at Thrapston, Northamptonshire by the end of the financial year which will increase UK capacity by some 50%. ABF expects to add at least a further four stores in Spain in the coming year and has announced plans to open test stores to explore the potential in the Netherlands and Germany, the first of which is expected to open early in 2009.

Acquisition and improvement in cost efficiency

During the year ABF spent £125m on acquisitions, primarily on establishing a major presence in the beet sugar industry in north east China and on certain European assets from the Gilde Bakery. In Australia, the acquisition of KR Castlemaine, a leading meat and small goods manufacturer, included a modern low cost factory at Castlemaine, Victoria and the regional KR brand. Combined with the existing meat business, this will provide an opportunity to drive efficiencies and enable a greater focus on product innovation. The group also announced the merger of Ryvita with Jordans, the UK breakfast cereal and cereal bar business, in which ABF will have a 62% interest. The merger will create a leading position for the supply of products to meet the increasing consumer demand for natural ingredients and healthy eating, and faster overseas expansion of the Jordans brand using the group’s international grocery presence. Some cost savings will also be achieved in both brands.

Technical outlook

On daily chart, ABF is making high lows from a 52-week low of 600.0p and trading above 20-day EMA. Both MACD and 14-day RSI trading above positive slope indicating a buy signal. MACD is negative, RSI is just below 50 and DMI just above 20 indicating consolidation between 630.0 and 650.0p. Stock has good support between 600.0p and strong resistance at 720p and 764.0p levels.

Trading strategy

The stock can be bought around 635p with a profit target 707.07p and stop loss of 603.6p (Hedge position: Short position in spread betting with £1.96 bet per point).

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Whitbread Group PLC
WTB.L

Sector	Travel & Lesuire
Last closing price (08/12/2008) (p)	817.5
52 week High/Low (p)	1466/655.5
Market Cap (£bn)	1.33
Sector weight age by Market Cap (%)	3.72
Average Volume (mn)	1.82
P/E ratio (TTM)	26.39
Industry P/E ration (TTM)	3.4

TTM: Trailing Twelve Month

Daily chart (WTB.L)

Business background and investment rationale

Whitbread PLC is a hotel and restaurant group managing several brands including Premier Inn, Brewers Fayre, Table Table, Beefeater and Costa Coffee.

Expansion of Premier Inn and Costa Coffee

Premier Inn emerged as the UK’s fastest and largest hotel group after it opened 14 new hotels this year, incorporating 1,380 rooms, and is on course to add 4,000 rooms in 2008/2009. For 39 weeks Premier Inn budget hotel chain, which accounts for about 70% of profits, had outperformed the wider hotel market, with total sales up 8.5% and revenue per available room (RevPAR) increasing by 5%. The business account continues to attract new customers; with new users up 16% and total sales via this channel up 33%. Total sales achieved in Costa during the period are up 22.6%. Like-for-like sales are up 2.6%. Whitbread has expanded Costa substantially and the total number of outlets now stands at 1,239, across 26 markets. In the next five years Whitbread is looking to increase the size of Premier Inn by 34% to 55,000 rooms and Costa to 2,000 stores.

Restructuring of business

Last year Whitbread sold David Lloyd Leisure and TGI Friday’s to increase its focus on Premier Inn hotels alongside a pub restaurant; a model that generates superior industry returns. To eliminate duplication and better align company interest’s, Whitbread announced it would combine its divisional management teams of the hotels and pub restaurant businesses and outsource its logistics operation to Kuehne & Nagel. The full £25m savings will be realised by the end of 2010/11 with £20m being achieved by the end of 2009/10. Whitbread responded well on food and energy cost inflation by improving operating efficiencies and putting lower cost options on its menus which resulted in the group’s operating profit margin increasing to 20% up from 19.3% last year.

Technical outlook

On daily chart, Whitbread is making positive slope with higher lows and trading above 20-day EMA, indicating a buy signal. MACD is negative but 12-day EMA cross above 26-day EMA indicating a weak buy signal. 14-day RSI is also above 50 supporting upward move. Stock has strong support near 765.0p and if it breaches it has support near 664p. Stock has resistance near 864.0p level and if it rise above resistance can found near 1000.0p.

Trading strategy

The stock can be bought around 795.0p with a profit target 885.23p and stop loss of 755.76p (Hedge position: Short position in spread betting with £1.57 bet per point).

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This report has been issued by CSS Partners LLP (“CSS Partners”). CSS Partners is an appointed representative of Charles Street Securities Europe LLP (“CSS”) which is authorised and regulated by the Financial Services Authority in the UK. It constitutes non-independent “investment research” as contemplated by the FSA Rules and is thus considered a marketing communication. This report was prepared by Kuldeep Bhati who is employed as an analyst at CSS Partners and as such does not conform with the FSA definition of independent investment research and as such is not subject to the rule of not dealing ahead of distribution of the marketing communication and was not prepared in line with the legal requirements for independent communication.

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Regulatory disclosures

In accordance with the Conduct of Business Rules COBS12.4.7R (i) in the preparation of the report the analyst used price and volume charts provided by independent data suppliers and applied technical analysis tools of investment and trading evaluation in arriving at his recommendations, ii) all recommendations made by the analyst are followed up in subsequent reports until the closure of a position, iii) there is no certainty that any recommendation will be successful or that technical analysis should be used exclusively to arrive at investment decisions.

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Distribution of recommendations for the period 1 July to 30 September 2008:

% Distribution of recommendations No of recommendation

Buy 60.8% 17

Hold 0 0

Sell 39.2% 11

The first column displays the % distribution of recommendations made by CSS Partners in this Technical Analysis Trading programme and the second column shows the numbers of such recommendation. Neither CSS nor CSS Partners has any investment banking relationships with any of the companies covered in the Technical Analysis Trading Programme, namely the companies in the FTSE 350 index.

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	% Distribution of recommendations	No of recommendation
Buy	60.8%	17
Hold	0	0
Sell	39.2%	11