The downgrade of Associated British Foods PLC (LSE:ABF) by Panmure Liberum on Friday underlined how quickly sentiment has turned after the group’s surprise profit warning the day before.
Panmure cut its rating to 'hold' from 'buy', arguing that Primark’s deteriorating performance in continental Europe now overshadows the rest of the investment case.
While the broker said there remains scope for self-help across the business, it warned that weak European like-for-like sales are raising more fundamental questions about the durability of Primark’s value proposition as competition intensifies and consumers remain cautious.
That concern is sharpened by the contrast with the UK. Primark’s domestic business rebounded swiftly after management invested in sharper pricing, marketing and click-and-collect.
Panmure is less confident those levers will translate as effectively in Europe, where Primark’s market position is weaker and competitive pressure higher.
Until there is clearer evidence of a turnaround, the broker expects investor attention to remain fixed on the slide in European sales.
Deutsche Bank struck a similar note, describing the update as raising “more questions than answers”. It highlighted the lack of a clear explanation for Europe’s underperformance and warned that further investment may be needed to restore growth, potentially weighing on margins.
The broader group picture is more balanced. Retail underlying profit guidance remains above £1 billion and stronger working capital has lifted free cash flow expectations.
But for now, analysts agree that confidence in AB Foods hinges on whether Primark can stabilise its European business and prove that the UK recovery can be replicated abroad.
After Thursday's 13% drop, the shares found some poise, bouncing 1.5% to 1,877.5p.