RBC Capital Markets has moved Associated British Foods Plc (LON:ABF) to an "underperform" rating from "sector perform" and lowered its price target to 1,850p, down from 2,050p. The broker said the downgrade reflects an increasingly challenged outlook for Primark, alongside reductions to earnings forecasts across ABF's major divisions.
At the time of RBC's note, ABF shares were trading at 1,920p, making the revised price target approximately 3.6% below the market price cited by the bank.
RBC trimmed its adjusted profit before tax forecasts for FY26 through FY28 by 4-7%, and noted that these estimates sit 2-10% below Visible Alpha consensus for the same years. Adjusted earnings per share assumptions were revised to 157p for FY26 and 157.8p for FY27, down from prior projections of 158.2p and 164.7p respectively.
The brokerage captured its view succinctly: "We think ABF's valuation is full given more limited growth prospects over the next few years." The research note places Primark at the centre of the reassessment - the retail arm accounted for 49% of group FY25 sales and contributed roughly 60% of group EBIT, according to RBC's breakdown.
On the top-line for Primark, RBC has cut its like-for-like sales forecast for FY26 to a 2.5% decline, versus an earlier expected 1.3% drop. The bank expects Primark's operating margin to remain around 10% in FY26 before easing to 9.5% in FY27. It also projects a decline in sales density, with sales per square foot falling from £495.9 in FY25 to £474.8 by FY27.
RBC highlighted pricing pressure from Shein as a significant near-term risk to Primark. Survey data referenced by the bank indicated Shein is cheaper than Primark at full price in Spain and Germany - markets that represent about 13% and 7% of Primark's sales respectively. In the UK, Shein's full-price levels are close to Primark's and, when promotions are considered, the broker judged Shein is likely cheaper.
The note cited cited data suggesting Shein's European market share gains accelerated in 2025, after the company's US growth slowed following the removal of de minimis rules on direct imports from China. RBC also noted Primark's roughly 40% gross margin leaves the retailer more exposed than peers to rising freight costs and oil-linked raw material price pressures.
On the grocery and ingredients side of ABF's business, RBC made further cuts. Grocery operating profit for FY26 is forecast at £456 million, down from a prior projection of £460 million, with margins easing to 10.8% from 11%.
RBC attributed this pressure to the normalisation of prices for US cooking oils under the Mazola brand and at Stratas Foods, ABF's 50%-owned US packaged oils supplier. Ingredients operating profit for FY26 was reduced to £242 million from a previous £251 million.
RBC's sugar profit outlook is notably weak for FY26, with operating profit forecast at just £10 million for FY26, improving to £50 million in FY27.
RBC explained its price target results from an average of two valuation approaches: a discounted cash flow and a sum-of-the-parts model. The DCF uses a 7.5% weighted average cost of capital and assumes a 2% terminal growth rate, producing an implied share price near £17.70.
Its sum-of-the-parts valuation applies a 10 times FY27 earnings multiple to Primark - a level the bank described as broadly in line with M&S and below NEXT's 15 times - and implies around £18.86 per share.
For investors and market participants, RBC's note signals a more cautious outlook for ABF driven primarily by retail competitive dynamics at Primark and softer profit expectations across grocery, ingredients and sugar. The bank's adjustments underscore sensitivity to pricing competition, freight and raw material costs, and commodity price normalization in the company's food businesses.