Deutsche Bank upgrades AB Foods, cuts TP to 2000p after 15% share drop

Deutsche Bank Research upgraded Associated British Foods Plc (ABF) to "hold" from "sell," adjusting its target price to 2000p from 2130p. This upgrade reflects the analyst's view that ABF's 15% share price decline since August now adequately prices in previously highlighted downside risks, including weaker Primark like-for-like sales and lower sugar profitability. Although concerns regarding Primark LFL persist and EPS forecasts for FY25-27 were reduced by 1-3%, the bank does not foresee an immediate further decline in profitability, with the stock now valued at approximately 10.5x calendar year 2026 estimated price-to-earnings.

Analysis

Deutsche Bank has upgraded Associated British Foods Plc (ABF.L) to “hold” from “sell,” a move predicated on valuation rather than an improvement in fundamentals. The analyst notes that the stock's approximately 15% price decline since its August peak now adequately reflects the downside risks previously identified, including weaker like-for-like (LFL) sales at Primark, lower sugar profitability, and pressure on grocery margins. These headwinds were validated in the company's recent pre-close statement. Despite the rating upgrade, Deutsche Bank lowered its price target to 2000p from 2130p and reduced its earnings per share (EPS) forecasts for fiscal years 2025-2027 by 1% to 3%, signaling persistent caution. While an immediate further decline in profitability is not anticipated, concerns over Primark's LFL performance remain a key overhang. At a valuation of approximately 10.5x calendar year 2026 estimated price-to-earnings and a last closing price of 1991.50p, the stock is now viewed as fairly valued, with limited near-term catalysts for significant upside.

Key Decisions for Investors

• The upgrade to 'hold' suggests the thesis for shorting ABF has weakened, as the stock's 15% decline appears to have priced in the negative catalysts related to Primark and sugar profitability.
• Initiating new long positions may be premature, as the lowered 2000p price target, reduced EPS forecasts through FY27, and the absence of a clear positive catalyst suggest a neutral risk/reward profile.
• Investors should closely monitor upcoming reports on Primark's like-for-like sales, which is identified as the key remaining risk and will be a critical determinant of future share price performance.