UK Equities: Defending Growth Amid Trade Tensions with AstraZeneca, Fresnillo, and ABF

The UK equity market has been a laggard in recent years, but with valuations at discounts and secular tailwinds emerging in key sectors, now could be the time to selectively deploy capital. Three companies—AstraZeneca (AZN), Fresnillo (FRES), and Associated British Foods (ABF)—stand out for their defensive characteristics, dividend stability, and exposure to secular trends like healthcare innovation, precious metals, and retail recovery. Even as trade disputes and AI adoption disparities loom, these stocks offer a mix of resilience and growth that justifies a bullish tilt.

AstraZeneca: Healthcare's Growth Engine with AI-Driven R&D

AstraZeneca's Q2 2025 results are shaping up to be a catalyst for its already robust valuation. The company's high-single-digit revenue growth (projected at 11% in local currency) and low-double-digit EPS growth are being driven by its oncology pipeline and strategic R&D investments. Notably, AstraZeneca's cell therapy platform via its $1B acquisition of EsoBiotec and partnerships like the $3B-potential Syneron Bio deal highlight its push into AI-driven drug discovery.

The healthcare sector's defensive nature is a natural hedge against economic volatility, and AstraZeneca's dividend stability (though not explicitly growing, its cash flow remains robust) adds to its appeal. Risks include regulatory hurdles in China—where it faces fines over tax and data privacy issues—but the company's diversified pipeline (e.g., Enhertu and camizestrant approvals) mitigates this.

Projected to hit ~$60B by 2025, driven by oncology and biotherapies.

Fresnillo: Silver's Safe Harbor in a Volatile World

Fresnillo, the world's top silver producer, offers a classic hedge against trade-related uncertainty. Silver's dual role as a commodity (industrial demand) and safe-haven asset (geopolitical tensions) positions it well as trade disputes escalate. Fresnillo's Q2 2025 results (due August 5) are expected to show strong production (49–56M ounces of silver) and cost discipline—its $40M 2024 cost savings and 80.6% renewable energy use underscore operational resilience.

The company's $1.3B cash pile and shareholder-friendly policies—like its 2024 $547M total dividend—add to its defensive profile. While risks like Mexico's regulatory changes and the Sabinas mine's operational issues linger, Fresnillo's long-term reserves (2.25B ounces of silver) and expansion projects (e.g., Jarillas shaft deepening) justify optimism.

Silver's correlation to volatility makes it a natural counterweight to equity market swings.

ABF: Retail's Comeback Kid with Global Scale

ABF's Primark division is navigating UK retail's choppy waters while capitalizing on growth markets. Despite flat UK sales, Primark's expansion in Europe and the U.S. (targeting 4–5% annual sales growth via store openings) and its low-cost model (12.1% operating margin) make it a standout in consumer resilience.

The Sugar division's struggles (€40M 2025 loss forecast) are a drag, but ABF's £591M buybacks and stable 20.7p dividend demonstrate cash return discipline. With the U.S. tariff impact now priced in and Primark's early H2 sales improvement, ABF could be a beneficiary of a broader retail recovery.

Key markets: Germany, Spain, and the U.S. as UK demand normalizes.

The Trade Tension Hedge: Why UK Stocks Win

While U.S.-EU trade disputes threaten supply chains and tariffs, UK equities offer two key advantages:
1. Valuation Discounts: The FTSE 100 trades at a 12.8x forward P/E, ~20% below its 10-year average, despite stronger cash flows.
2. Sector Diversification: The trio of AZN (healthcare), FRES (commodities), and ABF (retail) covers defensive and cyclical angles, reducing portfolio volatility.

Risks and the Bottom Line

• Trade Disputes: Tariffs and supply chain bottlenecks could pressure ABF's margins and Fresnillo's exports.
• AI Adoption Lag: While AZN is investing in AI, laggards in other sectors may struggle.
• UK-specific Risks: Post-Brexit regulatory hurdles and weak wage growth could dampen consumer sentiment.

But the positives outweigh these risks. AstraZeneca's R&D pipeline, Fresnillo's silver exposure, and ABF's global retail scale are all undervalued. For investors seeking growth amid volatility, this trio offers a balanced mix of dividends, defensive moats, and secular tailwinds.

Investment Takeaway: Overweight UK equities through AZN, FRES, and ABF. Use Fresnillo as a volatility hedge, AstraZeneca for growth, and ABF to play retail's recovery—while keeping an eye on global trade headlines.

ABF's consistent payout contrasts with peers' dividend cuts.

The author holds no positions in the stocks mentioned.