Shore Capital has welcomed Associated British Foods PLC's (LSE:ABF) moves to tackle underperforming parts of its business, describing the group as a “high-quality” company taking decisive steps to improve its portfolio.
The broker highlighted three problem areas identified at the half-year stage: Allied Bakeries, Azucarera in Spain and the Vivergo bioethanol plant in the UK.
ABF announced the acquisition of Hovis Group for a rumoured £70 million, aiming to create a profitable and sustainable UK bread business by combining it with Allied Bakeries’ Kingsmill brand.
The deal, subject to approval from the Competition and Markets Authority, is expected to bring significant cost synergies and efficiencies.
In a note entitled 'Sorting the Problem Kid Out', ShoreCap said that Allied Bakeries has been making trading losses estimated at £20–30 million annually, so any turnaround could boost the Grocery division’s profits.
On sugar, ABF has already begun rationalising its Spanish business, which is expected to be loss-making this year. In the UK, the future of Vivergo remains uncertain.
The plant has been losing around £3 million a month, with ABF openly frustrated by government policy and the recent removal of tariffs on US bioethanol imports.
ShoreCap said it would not be surprised if the plant were closed, which could deliver an annualised £30–35 million improvement in trading profits for the Sugar division from the 2026 financial year.
While the broker has not yet adjusted its forecasts, pending regulatory and operational clarity, it said the combination of initiatives could deliver a “notable beneficial swing” to group earnings from 2026 onwards.
The core of ABF’s profitability still comes from its international Grocery and Ingredients divisions and Primark, its discount fashion retailer.
ShoreCap expects the group to provide an update on 10 September and potentially refresh its forecasts at the preliminary results in November.
In the meantime, it reiterated its “buy” rating, arguing that ABF’s valuation remains undemanding and the latest measures strengthen its investment case.
The broker forecasts show ABF delivering revenue of £19.88 billion and adjusted pre-tax profit of £1.68 billion in 2025, rising to £21.42 billion and £1.99 billion respectively by 2027.
The group’s shares, trading at 2,273p, have risen 7.9% over the past month but remain down 7.3% over the year.
On Friday, they were changing hands for 2,289p, up just 0.7%.