RBC Capital Markets has cut its rating on Associated British Foods PLC (LSE:ABF) from ‘outperform’ to ‘sector perform’, citing pressure in the group’s sugar division and growing questions over Primark’s value-for-money appeal.
The downgrade reflects a mix of structural and cyclical concerns.
While Primark’s store expansion story remains intact, particularly in the US and parts of Europe, RBC’s consumer surveys show a shift in how shoppers perceive the brand. Once seen as the cheapest name on the high street, Primark is now viewed as more mid-market.
That might reflect efforts to lift its fashion credibility, but RBC warns it could weaken the chain’s appeal in a crowded discount retail market.
Elsewhere, ABF’s sugar business is underperforming. Losses at Vivergo, its UK bioethanol arm, combined with weak sugar prices in Europe, have knocked profit expectations.
Grocery is holding up better, helped by brands like Twinings, but Allied Bakeries continues to struggle.
RBC acknowledges some tailwinds ahead, including falling freight rates, stable FX and good margin discipline at Primark, but argues that the valuation already reflects much of the good news.
With ABF trading at around 11.5 times forecast earnings for 2025, the analysts think its conglomerate discount is justified.
Investors, they say, may find clearer alternatives in more focused UK names such as B&M or Next.
In short, ABF is doing a lot right, but the combination of weaker sugar earnings and brand perception risks at Primark has dulled RBC’s enthusiasm for now.
The shares were flat at 2,087.14p.