AB Foods shares severely punished on trading update

A Primark store in The Hague, Netherlands, in June 2025. Credit: Klaudia Radecka/NurPhoto via Getty Images.

Associated British Foods (LSE:ABF) is finding the current environment heavy going, with the Sugar business still leaving anything but a sweet taste in the mouth for investors.

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The Sugar division accounts for around 11% of group sales, where lower European sugar and higher beet prices, along with a loss at its UK bioethanol business, Vivergo, are still expected to cause an annual loss of £40 million for the unit versus previous estimates of profit up to £75 million. Sales overall are expected to show a decline of 10%, as a result of which the group has decided to close its Vivergo plant and restructure its Spanish sugar business, which will result in impairment charges of around £200 million.

The second largest unit is Grocery, which accounts for 22% of group sales, and trading is expected to be in line with the previous year. Strong showings from Ovaltine and Twinings have helped cushion the blow, while the announcement of the Hovis acquisition should result in financial sustainability as early as next year.

As ever, the main focus is on the group’s jewel in the crown, Primark, which is responsible for 47% of overall revenues. However, growth has been hard to come by and has come up against some tough comparatives from the prior year. In addition, cautious consumer sentiment is already beginning to weigh on prospects, as had largely been predicted following the measures announced in the Budget, which were seen as being particularly harmful to the retail sector.

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The sector itself is famously competitive, and Primark now lines up against the likes of Chinese players such as Shein and Temu, while its online offering is still far behind that of Next (LSE:NXT). That being said, AB Foods is estimating that the continued roll-out of stores will further boost sales growth, and the group opened 15 new stores in the second half of the year at home and abroad. This is set to expand further into the Middle East with the opening of one store in Kuwait next month and a further two in Dubai early next year.

Meanwhile, and although the US business is still in its fledgling stage, accounting for 5% of group revenues, the potential for growth is evident as the group focuses on investment and marketing to lift brand awareness in what could be a major opportunity. Sales continued to accelerate at a brisk pace, with an expected rise of 23%, while four stores were opened as the group continues to build on its growing momentum in what is a huge addressable market. Elsewhere, weakness of around 4% in the likes of France and Italy was somewhat offset by 9% growth in Central and Eastern Europe.

Overall for Primark, expected sales growth is expected to be pedestrian for the year at 1%, although on a like-for-like basis the tough comparatives lead to an estimated 2% decline in the second half. Favourable weather and popularity in the womenswear range have been a boost, while the online presence is also receiving attention from the group, where the Click & Collect service is available at all 187 of its British stores, and where the stock checker facility is seeing significant growth. While the online offering is far from the finished product as seen at many of its competitors, it is part of a two-pronged approach whereby physical stores remain a top priority for the group.

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As a traditional conglomerate, AB Foods benefits from business and geographical diversification, which in turn can often result in various units being able to pick up some of the slack elsewhere depending on the economic cycle. A dividend yield of 4% including specials is attractive enough, in addition to the previously announced £500 million share buyback programme.

A bounce in the share price over the last six months had left the price ahead by 3% over the last year, as compared to a gain of 12.6% for the wider FTSE 100. The shares have recovered by some 65% since their multi-year low in October 2022, but still significantly trail previous highs.

Progress is being made and future prospects are bright should the US expansionary fire ignite. However, the shares are currently being severely punished as a result of the headline difficulties in Primark and Sugar in particular, and the vertiginous fall at the open will do little to improve prospects for the market consensus, which is still stuck at a hold.