Kepler Cheuvreux has changed its investment view on Associated British Foods (LON:ABF), reducing the stock's rating from "buy" to "hold" and trimming its price target to 1,900 pence from 2,100 pence. The move follows the group's announcement that its planned split of retail and food operations will not take place until December 2027 - a delay that removes a potential share-price catalyst the broker had anticipated.
The broker's reassessment reflects a slate of sector-specific challenges flagged by both Kepler and the company. Kepler singled out pressures at Primark, ABF's value apparel chain, and escalating losses in the sugar division. The broker described fiscal 2027 as likely to be a transition year for the group.
Associated British Foods' own trading update, issued on Sept. 10, showed Primark like-for-like sales were expected to decline by 3% in the fourth quarter ended Sept. 12. Geographically, the company projected like-for-like sales in Britain and Ireland to tick up 0.4%, while continental Europe was expected to contract by 4.3%. Following the update, the shares dropped by more than 9% in early trading in London.
Despite the weaker recent trading, the company said adjusted operating profit for fiscal 2025-26 was anticipated to be broadly in line with expectations and that adjusted earnings per share were likely to finish ahead of prior forecasts. Primark's total sales are still forecast to increase by around 2% for the full year, driven in part by new store openings and growth from its franchise model - factors the company said together contributed roughly five percentage points to overall sales growth. ABF continues to expect the group's adjusted operating margin to remain near 10%.
Kepler's analysis of the sugar business was notably more pessimistic than prior forecasts. The broker now expects the sugar division to record an adjusted operating loss of between £70 million and £170 million in fiscal 2027 - a wider loss range than it had previously modelled. This follows an expected loss of up to £60 million in fiscal 2026. Kepler had previously anticipated losses would narrow in 2027 as global sugar prices rose.
In its Sept. 10 trading update, the company guided the sugar business toward the upper end of its own £25 million to £60 million adjusted operating loss range for fiscal 2026. ABF cited higher onerous contract provisions tied to low European sugar prices and increased gas costs as drivers of the weaker outlook. The company also flagged risks that could push 2027 losses higher, including the potential for elevated gas costs and adverse weather conditions in Africa.
Kepler described Primark as struggling to restart like-for-like sales growth amid subdued consumer sentiment across its principal markets in the UK, continental Europe and the United States. The broker did note ABF's planned initiatives to support Primark over time, including a planned roll-out of home delivery in Britain. The group has acquired an automated fulfilment facility in Sheffield to underpin that service.
Within ABF's Food division, the trading update outlined mixed prospects across specific businesses. Grocery adjusted operating profit is expected to come in slightly below earlier guidance, the company said, attributing the downgrade mainly to weaker demand for Twinings tea after a period of prolonged hot weather. Ingredients profit is forecast to be in line with previous expectations, while agriculture profit is expected to meet prior guidance.
Kepler cautioned that grocery profitability will be dented by the integration of Hovis into Allied Bakeries, and that the Ingredients segment will carry start-up costs related to a new yeast factory in India. The company itself signalled that, despite a one-off impact from consolidating Hovis, grocery profit in 2027 is expected to be slightly ahead of 2026, and that agriculture profit should improve.
Reflecting these headwinds, Kepler reduced its financial forecasts for ABF. The broker trimmed its 2026 sales estimate by 1.1% and its 2027 sales estimate by 2.5%. It lowered its 2026 adjusted EBIT forecast by 2.5% and its 2027 adjusted EBIT by 13.5%. Kepler also cut adjusted earnings-per-share estimates by 2.0% for 2026 and by 15.7% for 2027.
Kepler's numeric forecasts for the group are as follows. For fiscal 2026 it projects sales of £19.38 billion, adjusted EBITDA of £2.43 billion, adjusted EBIT of £1.50 billion and adjusted net profit of £1.07 billion. For fiscal 2027 the broker forecasts sales of £19.82 billion, adjusted EBITDA of £2.40 billion, adjusted EBIT of £1.45 billion and adjusted net profit of £1.01 billion.
Associated British Foods is currently valued at a market capitalisation of £13 billion.
Contextual takeaway - Kepler's downgrade and target reduction were driven by the removal of a near-term corporate reorganisation catalyst and by slower-than-expected recovery in Primark sales, combined with a deteriorating outlook for the sugar business. The broker's revisions to sales, EBIT and EPS forecasts reflect these pressures across ABF's retail and food operations.