Associated British Foods PLC's (LSE:ABF) unexpected hint at splitting its food and retail divisions has stirred plenty of debate, but Deutsche Bank is not getting carried away.
Analyst Adam Cochrane argued in a note to clients that a separation of Primark from the group’s food arm would not, on its own, lift the company’s valuation, chiming with the views of some others in the City.
The so-called “conglomerate discount”, the idea that a mixed business trades at a lower multiple than its parts, has not really applied to AB Foods for years, he says.
The main logic behind the move appears to be governance rather than value creation. With limited operational overlap between the two sides of the business, a demerger would give each more independence and focus, particularly as Primark continues to grow internationally.
Investors, though, have already priced in the prospect of a split, Cochrane adds, and there is little near-term upside from here.
Deutsche Bank has trimmed its forecast for earnings per share in 2026 by 1%, reflecting modest pressure on growth. AB Foods trades on roughly 12.5 times forecast 2026 earnings, which the broker describes as fair for a company expected to deliver only low single-digit profit growth.
While cash generation has improved, that is not enough to alter the overall stance.
Cochrane keeps a 'hold' recommendation on the stock and raises his price target to 2100p from 2000p, with shares last closing at 2216p.
For now, he concludes, any separation may make strategic sense over the long term, but it is unlikely to spark fresh investor enthusiasm in the short run.