Deutsche Bank and Panmure Liberum have both cut their target prices for Associated British Foods PLC (LSE:ABF), the Primark owner, after the group issued weaker-than-expected guidance for the year ahead.
Deutsche Bank reduced its target price to 1,790p from 1,850p, maintaining its 'hold' rating. In mid-afternoon trading, shares in the food and retail giant were flat at 1,868p.
Analyst Adam Cochrane said AB Foods has delivered its third consecutive negative earnings surprise in its initial guidance for the year ahead, with Sugar again the main culprit.
He said forecast earnings before interest and tax for the 2027 financial year have fallen from around £2.3 billion to £1.5 billion over the past three years, with most divisions coming under pressure.
Cochrane said Sugar's forecast earnings before interest and tax have swung from £240 million to a loss of £120 million, while Retail has fallen from £1,350 million to £973 million.
He said the negative earnings momentum has pushed the price-to-earnings ratio down toward 10 to 12 times.
Cochrane said the shares trade on around 12.5 times the 2027 calendar year price-to-earnings ratio, offering limited valuation support.
Panmure Liberum also cut its target price to 1,800p from 1,850p, retaining its 'hold' rating.
Analyst Anubhav Malhotra said Primark's like-for-like sales deteriorated in the fourth quarter to a decline of 3%, with Europe the main concern at a decline of 4.3%.
Malhotra said heavy investment in pricing and marketing has so far failed to drive meaningful volume improvement, with Primark margins expected to remain around 10% in the 2027 financial year.
He said the Sugar division's outlook has worsened further, with Group operating profit expected to decline again in the 2027 financial year.
However, Malhotra said the company is using the current difficulties to address issues across its Grocery, Sugar, Agriculture and Primark divisions ahead of its planned December 2027 demerger.
He said this could see the company entering the 2028 financial year with a stronger earnings outlook, particularly in its Foods divisions.
Malhotra said Primark's turnaround may take longer than hoped, though he sees potential investor interest returning in nine to 12 months.
