The Iberian ambitions of Associated British Foods are clearly not restricted to Primark, its discount fashion chain that now has 11 stores in Spain. The owner of Kingsmill bread and Twinings tea yesterday confirmed the €385 million (£344 million) purchase of Azucarera Ebro, Spain’s biggest sugar producer.

The deal might look strange at first sight. The drawn-out reform of the EU sugar regime, which has taken nearly six million tonnes of beet off the market, has made the company’s British Sugar business the biggest drag on its profitability, which would appear to reduce the desirability of further investment in Europe. Further, having taken control of Illovo, Africa’s biggest sugar producer, two years ago, ABF might be thought to be more interested in extending its reach in emerging markets.

But Ebro has much to commend it. It has three factories in northern Spain that require no additional capital expenditure and, after a dip in earnings this year, marking the worst effects of EU reform, operating profits should rebound to €44 million in ABF’s next full financial year, which should make the acquisition modestly earnings-enhancing. Ebro also gives ABF a presence in a market where it was previously nearly invisible at a time when rivals are jockeying for position: as witnessed by the recent purchase of Danisco’s sugar business by Germany’s Nordzucker.

Perhaps most importantly, Ebro’s new cane refinery near Cadiz provides ABF with processing capacity for Illovo’s raw cane just as EU sugar markets are opening up to such output from less-developed countries with tariff-free access. The plant should begin processing about 400,000 tonnes from next October, when the new regime formally begins. If there is an adverse effect on sentiment, it is that an acquisition takes ABF, once synonymous with its cash pile, further into debt. However, with net borrowings of just one times annual operating profits, that worry should not be overstated.

Sugar lies at the heart of ABF, where the company has historically shown itself a highly efficient operator. In the belief that European sugar is now past its lowest ebb and that easing agricultural price inflation should broadly work in ABF’s favour, the shares at 653p, down 6½p, or 11 times current-year earnings, remain a solid hold.

Inchcape

As the only international play among Britain’s car dealers, the attraction of Inchcape has been that it is not a Pendragon or a Lookers – or, put another way, that its exposure to the fast-growing automotive markets of Russia and Asia should protect it from the worst of the carnage in the West.

But as yesterday’s profit warning – its second in two months – and 28 per cent fall in its shares suggest, these are now suffering too. Having been up 9 per cent in October, Russian sales of foreign-branded cars fell 15 per cent last month. In Australia, sales have been hit by the withdrawal of GMAC, the General Motors car financing arm, and are expected to fall 15 per cent next year.

The upshot is that Inchcape is only likely to break even next year – against previous forecasts of a £190 million pretax profit – and has dropped its final dividend. It has also shed 1,900 jobs, 300 more than planned.

But the extent of yesterday’s share price retreat owes more to Inchcape’s admission that it is likely to breach its banking covenants by the middle of next year and is in talks with its lenders. At the end of last month, Inchcape had net debt of £540 million, £30 million lower than two months previously, but bottlenecks in distribution mean that Arden Partners, the stockbroker, expects that burden to rise to £640 million by the end of next year.

The short-term risk is that banks will raise their interest charges, which were already forecast at £85 million for 2009. Further out, a more extensive refinancing cannot be ruled out.

On the adage that profit warnings customarily come in threes and that volatile sales patterns and the still-uncertain fate of Detroit’s Big Three make it difficult to see too far ahead, steer clear – even at 50¾p.

Wichford

In a small-cap stock market packed with share price anomalies, that of Wichford, the property group, appears one of the oddest. All of its tenants are either local or central governments, its dividend is covered by rental income, yet its shares yield an eyewatering 17 per cent – clearly conveying the stock market’s belief that the payout will be cut.

That is not to say that Wichford is not finding the going tough. Its net asset value per share has collapsed 57 per cent in the 12 months to September 30, and, given current UK property valuations, is likely to head lower still. It has borrowings of £490 million – nearly nine times its stock market value – and a complex interest rate hedging agreement with Lehman Brothers that at some point will be unwound by the US bank’s administrators. It also has €60 million (£53.6 million) of nonrecourse debt related to a portfolio of German properties that requires renegotiation before 2010.

But at 43p there are obvious attractions. Wichford receives 8p a share of earnings a year in rent from public sector tenants whose occupancy risk is negligible, which implies that its 7.3p a share dividend is sustainable for now. Recent moves in rental yields and swap rates – whereby the cost of funding property has once again dropped below the income it produces – are also favourable.

However, pressure on net asset values and the likelihood that Wichford will have to raise fresh equity in two or three years’ time, mean the shares are for steel-nerved income seekers alone.

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