Shares in Associated British Foods, which owns British stalwarts like Primark, Kingsmills and Twinings, dropped this morning after stockbroker Deutsche Numis downgraded its rating from ‘hold’ to ‘sell’.
Shares in the FTSE 100 firm, which owns businesses in five segments including grocery, sugar, agriculture, ingredients and retail, dropped more than three per cent in early trades before paring back losses to just over 2.5 per cent.
The retail and food giant raised its guidance earlier this year following a strong set of results but analysts said they “saw the factors driving the 2024 earnings upgrades reversing as [they] look into 2025”.
While retail giant Primark has been in recovery mode recently, Deutsche said it believed this boost has “played out” due to a “lack of like-for-like leverage and increased investment”.
It added that sugar profitability will decrease, and grocery sales – which fell for the first time in three years this month – will give up some of their margin gains.
“This more cautious view may go against the grain (with no other sell recommendations) given a better consumer outlook and falling bond yields, but we see companies better placed for these trends”, analysts said.
RBC analysts similarly reduced their forecasts for ABF by one to three per cent, due to the lower Primark like-for-like forecasts and lower sugar prices.
However, RBC analysts were more optimistic than Deutsche about ABF’s future: they expected improvements in sugar prices, grocery sales and Primark’s fortunes.
“We expect a moderate rate of like-for-like sales growth short term, driven by volume as prices have now flattened out, with a strong margin improvement for Primark,” analysts said.
“Sugar profitability should improve significantly this year helped by higher UK production volumes and an improved performance by Vivergo,” they added.