Primark owner ABF has a healthy balance sheet but has chosen not to pay a dividend © Bloomberg

Rashness belongs to youth, prudence to old age, said Roman orator Cicero. If so, George Weston, youthful chief executive of Associated British Foods, the sugar-to-sandals group, may be old before his time.

Primark owner ABF has a nice, plump balance sheet. Nonetheless, Mr Weston has chosen not to make a payout to dividend-starved investors. Pity. That might be just the spoonful of sugar that helps the medicine of a second lockdown go down.

Mr Weston is being prudent, though. Sales of sugar, bread and Twinings tea stood the group in good stead this year with operating profits rising more than a quarter. But it warns not to expect the same again and recession looms. 

In normal times, Primark’s cut-price pyjamas would more than make up for static sales of staples and posh tea. Primark accounted for two-thirds of group operating profits in 2019. But we are not in normal times with governments continuing to impose lockdowns. This year, Primark’s operating profits were just a third of ABF’s total pre-nasties earnings.

The UK lockdown earlier this year cost Primark — which doesn’t operate online — about £650m a month in lost sales over 11 weeks. Customers proved loyal. They waited and then queued round the block when stores reopened to pick off Primark’s joggers and gilets.

ABF reckoned it maintained market share and same-store sales, excluding a handful of shops in tourist hotspots, were down less than a tenth from reopening to its year-end in September. That helped lift operating margins to about 12 per cent. Few etailers, which carry heavy costs of picking and distributing orders and processing returns, can touch Primark on price or profitability. 

Mr Weston hopes, like most merchants, that the second UK lockdown will be shorter and less onerous. ABF believes it will have to close about 60 per cent of its stores around the world, which will cost it about £375m a month in lost sales. It hopes to at least maintain market share or even increase it as recession shakes out high-street rivals. 

This time round, though, the UK government is allowing customers to click and collect from non-essential retailers. Mr Weston has ruled out “snatching” at C&C to defend lost sales. It would be an expensive mistake, he suggests. Probably rightly.

However, multichannel retailers, many of which struggled to cope with demand and capacity constraints in the spring, have got a grip of their supply chains. And previously loyal Primark customers will be more comfortable shopping online. Successive lockdowns might test ABF’s resolve to stay offline. 

Mr Weston does his best to sound as sunny as the evergreen Mary Poppins but he is right and prudent to hold on to rainy day cash.

Telit’s time

Oozi Cats is a difficult name to forget, writes Bryce Elder. More than three years have passed since the founder of Telit resigned on allegations that he was also Uzi Katz, a fugitive from US justice who was charged with setting up a 1990s property scam. Yet, even with predators now circling, it seems the internet-of-things widget maker remains a prisoner of its complicated past.

Confirmation on Tuesday that Telit has received preliminary bid approaches from US sector peer Lantronix and shareholder DBay Advisors succeeded only in lifting the stock back to where it was at the start of September, giving the Aim-listed company a market value of just over £200m. It remains about 60 per cent below the record high hit in 2017, shortly before Mr Cats’ departure.

On paper, that looks harsh. Telit has spent recent years purging its board, slimming down operations and shoring up its balance sheet. Paolo Dal Pino, chief executive since 2018, has sought to impose corporate governance and cost controls on a company that once employed the founder’s wife as art curator.

Attempts at rehabilitation have not been rewarded, however. Telit still trades at little more than 10 times house broker FinnCap’s 2020 earnings forecast. Peers such as Canada’s Sierra Wireless, long rumoured to be Telit’s most likely match, are given much higher valuations.

In that context it may seem peculiar that one of the bid approaches came not from a rival but from DBay, an Isle of Man asset manager that last year rescued haulier Eddie Stobart from insolvency, and which disclosed its initial Telit stake only in late July. Once a stock has a reputation problem, however, this is the kind of hard-nosed investor that moves in.

Telit’s biggest shareholders are Hong Kong-based investment group Run Liang Tai Management and Mr Cats himself, who have 15 and 13 per cent respectively. Run Liang’s interest has led to persistent talk of Chinese bidders — a possible national security issue even though Telit is an Italian-Israeli company that just happens to be listed in London. Perhaps DBay’s interest will force someone’s hand.

Telit’s shares rose more than 10 per cent in the four sessions before it confirmed the takeover approaches. While improvements can be made operationally, its tight-knit ownership will be a hindrance for most investors. For all the recent talk about defending UK technology champions, few would be sorry to see this one go.

ABF: kate.burgess@ft.com
Telit: bryce.elder@ft.com

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