Associated British Foods had every reason to feel hard done by yesterday. Despite the twin threat of a high street slowdown and rampant food-price inflation, the group was able to issue a bullish trading statement that claimed that its Primark and Allied Bakeries businesses are actually gaining momentum.

Instead of sitting back and watching the share price rise, management was left scratching its head as AB Foods ended up one of the biggest fallers in the FTSE 100 index, down 26p at 850½p. Traders put the slump down to a mixture of profit-taking and hedge funds speculating on a downturn.

As far as John Bason, the AB Foods finance director, is concerned, the company remains a growth story, not least at Primark, which this year will become the group’s biggest money-earner by overtaking its sugar empire. The discount fashion chain reported a 4 per cent rise in like-for-like sales for the first half of AB Foods’ financial year at a time of a consumer downturn and is set to double its presence in Spain and expand into Portugal.

In grocery, Allied Bakeries has cut losses despite a doubling of wheat costs, with the higher price for a loaf of Kingsmill, up from 88p last year to £1.09, failing to hit sales.

One of the biggest surprises was on the agricultural side, where the high wheat price has actually fuelled a bumper year in grain trading. Analysts reacted by raising their profit forecasts for the group for 2008, with Cazenove lifting its target for earnings per share by 1 per cent to 55p.

This, it has to be remembered, comes in a year when AB Foods was expected to struggle because of the £30 million profit shortfall in its sugar business after the quota reductions being forced on to producers by the European Union.

One look at Premier Foods, which tumbled 8.5 per cent yesterday after a savage price downgrade from Credit Suisse and the sale of 15 million shares by one single investor, and AB Foods looks in rude health.

Concerns remain, not least the higher interest bill likely this year as a result of higher capital expenditure. Net debt could be more than £800 million at the half-year stage. Raw material costs are also continuing to rise, with Mr Bason yesterday unable to rule out further price rises for Allied Bakeries’ brands, which could be one step too far for the cash-conscious customer.

However, the clouds over the group’s sugar business are beginning to clear, with the EU close to achieving its goal of encouraging the industry to “relinquish” five million tonnes of production, and profits could begin to rise in 2009.

On a price/earnings ratio of 15, shares in AB Foods are not cheap, but they remain a better bet than many FTSE 100 peers, given the current market volatility. Hold.

Ultra Electronics

Budget cuts hang over the defence sector like one of the Ministry of Defence’s new “loitering” bombs.

It seems likely that major equipment projects will be delayed, possibly for several years, as the MoD juggles priorities. The question being asked now is how this will affect revenues in the defence sector.

However, budget crises are nothing new in defence and many companies have put in place coping strategies.

Ultra Electronics, the battlespace information technology group, has used the defence boom of recent years to diversify and it now has a strong position in the civil sector.

The company has also invested heavily in programmes that are almost guaranteed to pay off, starting this year. For example, it is equipping Boeing’s new 787 with wing deicers, sound-proofing the Airbus 400M, and will also supply power systems to rail upgrades in East London ahead of the 2012 Olympics. All these projects will boost its balance sheet.

Ultra said yesterday that revenues grew 10 per cent last year to £413 million and profits rose 11 per cent to £63 million. This strong base and good prospects for 2008 should make Ultra an easy buy for investors.

But much of the upside has already been priced in and Ultra is not cheap compared with its sector rivals. It is trading at a p/e ratio of 15.7 compared with Cobham’s 13.4.

But an order book of £621 million effectively guarantees this year’s performance, so Ultra looks to be an excellent hedge against the chaos engulfing financial stocks.

Goals Soccer Centres

While five-a-side football is not a new craze, the professionalism that has been brought to the sport by operators such as Goals and Powerleague has spurred fresh interest in what is known in the trade as small-sided football.

On the face of it, yesterday’s full-year numbers from Goals look strong, with turnover up 26 per cent, pretax profits up 42 per cent and earnings per share up 50 per cent. Like-for-like sales growth of 7 per cent is also impressive, although it was up 10 per cent at the half-year stage, suggesting a slowing to about 4 per cent in the second half. But that is still solid in the present climate and analysts believe that it will maintain 4 per cent growth this year.

The real opportunity for Goals is its development potential. It has 28 sites and expects to continue to open at least six new centres a year. The capacity for up to 250 sites in the UK provides huge growth potential, although the company is already casting its net overseas. It has signed up a franchise-holder in South Africa to cash in on the 2010 World Cup and it will open a pilot centre in Los Angeles under a joint venture.

The shares, up 7p at 330p, are trading on a multiple of about 22 times 2008 earnings. That is not cheap and does not provide much margin for slippage, but the development potential – both here and overseas - makes them a “hold”.

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