Associated British Foods (ABF) shares weakened on Tuesday after Citi added the stock to a negative catalyst watch, citing expectations of a sequential slowdown in Primark's like-for-like sales and ongoing headwinds in the group's Food division.
Citi said it was previewing ABF's third-quarter trading statement - which is scheduled to cover the 12 weeks to May 23 - and forecast a 4% like-for-like sales decline for Primark in the third quarter. The broker characterized that outcome as a roughly 1 percentage point deceleration versus the performance seen in the first half, and said the change is consistent with the underlying growth rates observed across Primark's major markets.
The brokerage highlighted several factors it believes will weigh on Primark's comparatives. It noted that the UK like-for-like comparative base becomes 5 percentage points more demanding in the second half compared with the first half. Citi also pointed to weather patterns that it said indicate a later start to the spring and summer selling seasons relative to last year - a development it views as a headwind for the third quarter. In addition, Citi observed that Primark benefited in the prior year's third quarter from cyber disruption at M&S, which provided a favorable comparative for that period.
When excluding the UK, Citi assumed growth for the third quarter would be sequentially unchanged versus the first half. The brokerage arrived at that stance after estimating first-half 2026 like-for-like sales excluding the UK at negative 6%.
Factoring in a foreign exchange tailwind of positive 1%, Citi projected third-quarter Primark sales of
On the Food division, Citi said it was cautious on grocery margins for the second half of fiscal 2026. The brokerage said it expects ABF will need to increase spending on marketing and promotional activity as Branded products in the UK continue to underperform Private Label. Citi added that it sees no signs of recovery in either European or world sugar prices at this stage.
Across its Food assumptions, Citi said it is 4% below consensus for second-half aggregated Food sales and 8% below consensus for second-half Food adjusted EBIT.
The broker expects the UK Competition and Markets Authority to clear ABF's Hovis transaction on June 24. Citi noted estimated synergies from that deal could imply a 1% to 4% upside to consensus fiscal 2027 adjusted EBIT, although those gains have not yet been included in Citi's models.
As a consequence of its updated view, Citi trimmed its fiscal 2026 and fiscal 2027 sales estimates by 0.6% each, citing weaker Primark like-for-like sales and depressed sugar prices. The brokerage reduced adjusted EBIT forecasts by 2% for fiscal 2026 and by 1% for fiscal 2027, and lowered earnings-per-share estimates by 3% and 1% for the same periods. Citi said those EPS estimates sit 5% and 4% below VA Consensus, respectively.
Finally, Citi's sum-of-the-parts-derived target price for ABF declined to from .
Investors and market participants will now be focused on ABF's trading statement for additional confirmation of Citi's assumptions, particularly around Primark's like-for-like trajectory, the trajectory of sugar prices and the degree of margin pressure in Grocery.
Summary
Citi placed Associated British Foods on a negative catalyst watch ahead of the group's third-quarter trading statement and forecast a 4% like-for-like sales decline at Primark for the period. The brokerage also flagged margin pressure in the Food division, sees no recovery in sugar prices, reduced its sales and earnings forecasts for fiscal 2026 and 2027 and lowered its target price.
Key points
- Citi forecasts a 4% like-for-like sales decline for Primark in the third quarter and projects third-quarter Primark sales of .
- Citi is cautious on Grocery margins in 2H26e and sees no recovery in European or world sugar prices at this stage, putting pressure on Food division earnings.
- The brokerage trimmed fiscal 2026 and 2027 sales and adjusted EBIT forecasts, lowered EPS estimates, and reduced its sum-of-the-parts target price to .
Risks and uncertainties
- Primark like-for-like sales could be weaker than Citi's 4% decline forecast, which would further pressure retail sales and adjusted EBIT - impacting the retail sector.
- Persistently depressed European and world sugar prices could keep Food division sales and margins under strain, affecting grocery and consumer goods segments.
- Timing and realization of synergies from the Hovis transaction remain unmodeled by Citi despite an expected CMA clearance, creating uncertainty around potential upside to fiscal 2027 adjusted EBIT.
Tags: retail, grocery, Primark, sugar