RBC cuts ABF to “underperform” as Primark weakens, sees downside ahead By Investing.com

Investing.com — RBC Capital Markets downgraded Associated British Foods Plc (LON:)to “underperform” from “sector perform” on Monday, slashing its price target to 1,850p from 2,050p as Primark’s competitive position erodes and earnings forecasts fall below consensus across the group’s key divisions.

ABF shares were trading at 1,920p at the time of the report, putting the new price target 3.6% below the current price.

The bank cut its FY26-28 adjusted profit before tax forecasts by 4-7%, placing its estimates 2-10% below Visible Alpha consensus for the same period. 

Adjusted EPS estimates were lowered to 157p for FY26 and 157.8p for FY27, from prior estimates of 158.2p and 164.7p respectively, according to the RBC report.

“We think ABF’s valuation is full given more limited growth prospects over the next few years,” the brokerage said.

Primark, which accounts for 49% of group FY25 sales and 60% of group EBIT, is at the centre of the downgrade. 

RBC cut its forecast for the retailer’s like-for-like sales, now expecting a 2.5% decline in FY26 compared with its earlier estimate of a 1.3% drop. 

The brokerage said operating margin is likely to remain at 10% in FY26 before easing to 9.5% in FY27, while sales per square foot are projected to fall from £495.9 in FY25 to £474.8 by FY27.

Shein’s pricing is emerging as a key pressure point, RBC said, with its surveys showing the fast-fashion retailer is now cheaper than Primark in Spain and Germany, markets that account for about 13% and 7% of Primark’s sales, respectively. 

In the UK, Shein’s prices are close to parity with Primark at full price and are likely lower once promotions are factored in, the brokerage added.

Shein’s European market share gains accelerated in 2025 after its US growth stalled following the elimination of de minimis rules on direct imports from China, per Euromonitor data cited in the report.

Primark’s gross margin of about 40% leaves it more exposed than peers to rising freight and oil-linked raw material costs, RBC said.

On the food side, Grocery operating profit is forecast at £456 million for FY26, down from a prior estimate of £460 million, with margins falling to 10.8% from 11%. 

The pressure stems from price normalisation in US cooking oils under the Mazola brand and at Stratas Foods, ABF’s 50%-owned US packaged oils supplier.

Ingredients operating profit was cut to £242 million from £251 million for FY26. Sugar operating profit is forecast at just £10 million for FY26, improving to £50 million in FY27.

RBC said its price target is based on an average of discounted cash flow and sum-of-the-parts valuations. 

The DCF, which assumes a 7.5% weighted average cost of capital and a 2% terminal growth rate, implies a share price of about £17.70. 

Its SOTP valuation applies a 10 times FY27 earnings multiple to Primark, broadly in line with M&S and below NEXT’s 15 times, implying around £18.86 per share.