Last Update 05 Dec 25
ABF: Potential Primark Split And Disciplined Buybacks Will Shape Future Share Performance
Analysts have nudged their price targets for Associated British Foods modestly higher, with recent moves such as a lift from about 1,770 GBp to 1,830 GBp and from 2,200 GBp to 2,500 GBp, citing expectations that a potential Primark separation and resilient profitability could unlock further shareholder value.
Analyst Commentary
Analysts are split on the near term outlook for Associated British Foods, with recent rating and target price changes reflecting differing views on the pace at which value from Primark and the wider portfolio can be realised.
Bullish Takeaways
- Bullish analysts see the potential separation of Primark as a major catalyst that could unlock a higher sum of the parts valuation for the group.
- The move to a higher upside case target in the 2,500 GBp range suggests confidence that management can execute on strategic restructuring without materially disrupting growth.
- Supportive views highlight resilient profitability in the core businesses, which underpins the investment case even ahead of any structural change.
- Optimistic forecasts assume that stronger capital allocation and a clearer focus on the high growth retail arm can accelerate earnings expansion.
Bearish Takeaways
- Bearish analysts, while modestly lifting their price targets, maintain that the shares are still overvalued relative to near term earnings power.
- Concerns remain that any Primark separation could be complex and protracted, limiting the pace at which value is crystallised for shareholders.
- Cautious views point to execution risks in both retail and food operations, with uncertainty over how margins will hold up in a more challenging consumer environment.
- Some forecasts assume slower growth and margin pressure, which, in their view, justifies a discount to more aggressive valuation scenarios.
What's in the News
- Citi raised its price target on Associated British Foods to 1,830 GBp from 1,770 GBp while reiterating a Sell rating, reflecting cautious views on upside from current levels (periodical).
- AB Foods announced it is reviewing its group structure, with chief executive George Weston confirming that the process could result in a demerger that separates Primark from the food businesses and lists both entities on the London Stock Exchange (key development).
- Management suggested a standalone Primark listing could command a higher valuation and allow both Primark and the food arm to benefit from dedicated leadership teams, while majority shareholder Wittington Investments is expected to retain a 58 percent stake in each company if a split proceeds (key development).
- The Board of Directors authorized a new share buyback plan on November 4, 2025, under which AB Foods will repurchase up to £250 million of its shares, with the program targeted for completion before the end of the 2026 financial year (key development).
- Primark continued its international expansion, opening 15 new stores across the US and Europe, completing 22 store refits, and preparing for its first Middle East stores under a franchise model in Kuwait and Dubai from late 2025 into early 2026 (key development).
Valuation Changes
- Fair Value: Unchanged at £22.76 per share, indicating no revision to the intrinsic value estimate.
- Discount Rate: Stable at 7.07 percent, reflecting no change in the assumed cost of capital.
- Revenue Growth: Fallen slightly from about 2.93 percent to about 2.89 percent, signalling a marginally more conservative top line outlook.
- Net Profit Margin: Risen slightly from about 6.99 percent to about 7.00 percent, implying a small improvement in expected profitability.
- Future P/E: Effectively unchanged at about 12.3x, suggesting no material shift in the valuation multiple applied to forward earnings.
Key Takeaways
- Primark's expansion and digital initiatives are poised to boost revenue and customer engagement across key markets.
- Strategic sustainability and efficient capital allocation hint at enhanced financial returns and strong shareholder value through dividends.
- The abrupt decline in sugar prices, exit from China, and market expansion risks could impact profitability and revenue stability across segments.
Catalysts
About Associated British Foods- Operates as a diversified food, ingredients, and retail company worldwide.
- ABF is expected to benefit from its significant investment in new stores and capacity, particularly with Primark's expansion in the US and various growth markets in Europe. This should support revenue growth over the medium term.
- Continuous improvements in operating margin and returns, as seen in various divisions such as Grocery and Ingredients, suggest that cost efficiencies and improved supply chains can enhance net margins.
- The strategic focus on sustainability and efficient capital projects, like in the Sugar and Ingredients divisions, could lead to enhanced financial returns and improve earnings in the longer term.
- The rollout of digital initiatives and Click & Collect in Primark is intended to drive footfall and sales in stores, potentially increasing revenue and customer engagement.
- Strong cash generation and shareholder returns via dividends and share buybacks indicate a positive outlook for earnings per share, supported by efficient capital allocation strategies.
Associated British Foods Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Associated British Foods's revenue will grow by 3.0% annually over the next 3 years.
- Analysts assume that profit margins will increase from 6.6% today to 7.4% in 3 years time.
- Analysts expect earnings to reach £1.6 billion (and earnings per share of £2.35) by about September 2028, up from £1.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as £1.4 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.6x on those 2028 earnings, down from 12.0x today. This future PE is lower than the current PE for the GB Food industry at 15.7x.
- Analysts expect the number of shares outstanding to decline by 1.08% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 6.82%, as per the Simply Wall St company report.
Associated British Foods Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The abrupt decline in sugar prices in Q4 of 2024, particularly in Europe, and ongoing price volatility may significantly impact the profitability and margins of the Sugar division in the immediate future, with expected lower profits in 2025.
- The exit from China in the Sugar division and the reduction of operational performance at Vivergo indicate potential challenges and disruptions that could impact revenue and earnings from international operations and specialty ingredients.
- The planned expansion into the U.S. market for Primark and reliance on its growth is coupled with execution risks, such as uncertain consumer brand awareness and variable store performance, contributing to potential volatility in revenue and profitability.
- The ongoing remediation of cost pressures, such as labor cost inflation, which partially offsets gross margin increases within the Retail segment could hinder future net margin improvement if not managed effectively.
- Changes in foreign exchange rates have notably impacted revenue and profitability, particularly due to adverse translation movements. Future fluctuations could continue to pose a risk to earnings stability across segments operating in various international markets.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of £22.244 for Associated British Foods based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £31.0, and the most bearish reporting a price target of just £17.5.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £21.7 billion, earnings will come to £1.6 billion, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 6.8%.
- Given the current share price of £22.05, the analyst price target of £22.24 is 0.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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