Associated British Foods Downgraded by Kepler on Delayed Business Split

Kepler Cheuvreux has downgraded Associated British Foods (LON:ABF) to 'Hold' from 'Buy', citing the company's decision to postpone the planned separation of its retail and food businesses. The broker also reduced its price target on the stock to 1,900 pence from 2,100 pence, arguing that the delay removes a significant potential catalyst that was expected to support the share price.

Catalyst Removed, Headwinds Remain

The primary driver for the downgrade is ABF's announcement that the split of its operations will now be delayed until December 2027. According to Kepler, this separation was a key event anticipated by the market to unlock value within the conglomerate.

Kepler's analysis also pointed to persistent challenges facing ABF's main divisions. The downgrade followed a trading update from ABF which highlighted operational pressures. The company's shares fell more than 9% in early London trading on the day of that update.

Primark and Sugar Operations Under Pressure

The broker highlighted specific headwinds centered on the Primark retail chain and the company's sugar business.

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• Primark: The fast-fashion retailer is expected to see like-for-like sales fall by 3% in the fourth quarter, according to ABF's guidance. This reflects weak consumer sentiment in its core European markets, though full-year total sales are still projected to rise about 2%, driven by new store openings.
• Sugar: Kepler now forecasts a wider adjusted operating loss for the sugar division in fiscal 2027, projecting a loss between £70 million and £170 million. This is a significant revision from previous expectations and is attributed to low European sugar prices, higher gas costs, and weather-related risks in Africa.

Analyst Forecasts Cut

Reflecting the dimmer outlook, Kepler has significantly revised its financial estimates for Associated British Foods. The broker lowered its adjusted earnings per share (EPS) forecast for fiscal 2026 by 2.0% and made a much steeper cut of 15.7% for fiscal 2027.

For fiscal 2027, Kepler now forecasts sales of £19.82 billion and adjusted EBIT of £1.45 billion. The broker also noted that profitability in the grocery division would be affected by the integration of the Hovis brand and start-up costs for a new factory in India.