Associated British Foods PLC (LSE:ABF) faces a growing risk of earnings downgrades as weak sales growth at Primark and pressure on profit margins continue to weigh on investor confidence, according to Deutsche Bank.
The bank cut its target price on the FTSE 100 group to 1,850p from 1,925p and maintained a 'hold' rating, saying the investment case remained difficult despite the shares trading near 2013 levels.
Analysts said sentiment towards the retailer and food group had "largely been negative" because of poor like-for-like sales at Primark alongside "other divisional weakness".
They said management had "not fully explained the reasons for the relative weakness in Europe", while the benefits from planned investment and turnaround measures remained unclear.
There is a "risk of further LFL weakness at Primark", with potential pressures on gross margins if, as expected, cost inflation is not fully passed through to the consumer.
The analysts said hopes of a Primark demerger were also likely to remain muted “until the LFL improves”.
Deutsche's forecasts for earnings per share for the 2026 financial year were cut by 5% to 157p and by 7% for 2027, saying this should provide “a more realistic base for earnings growth”.
The note also highlighted concerns over AB Foods’ sugar business, with lower sugar prices "making the European sugar businesses a rather unattractive proposition at this stage".
While the shares' valuation at about 11 times earnings could provide some downside support, investors were felt to need "more visibility on an inflection point for Primark LFL sales" to lure them in.