ABF Shares: Primark ‘Price Perception is a Concern’

RBC Capital downgraded Associated British Foods (LON: ABF) from Outperform to Sector Perform in a note this week, maintaining a 2,150p price target on the stock.

The bank pointed to concerns regarding Primark’s pricing image and a mixed outlook for the company’s food divisions.

RBC analysts said they still see room for growth at Primark: “We see potential for Primark to continue to take share on account of its space expansion, and its gross margin outlook looks encouraging.” 

However, RBC flagged warning signs around consumer sentiment, adding, “our surveys suggest that price perception is a concern.”

In its interim results reported in late April, ABF said Primark delivered good growth in Europe and the US. However, they highlighted continued consumer caution in the UK.

Beyond Primark, the firm’s other divisions are said to have shown varied prospects. “ABF’s food businesses are likely to remain a mixed bag, dragged down by Sugar,” RBC wrote, highlighting the underperformance of one of the group’s core segments.

RBC concluded that, in light of these dynamics, “an implied conglomerate discount is justified” and downgraded the stock accordingly.

ABF shares are up around 1.1% this year. However, in the last 12 months, it is down more than 23%.