City broker slashes price target for Primark-owner Associated British Foods

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Total UK footfall decreased by 0.4 per cent in July
Total UK footfall decreased by 0.4 per cent in July

Analysts at Panmure Liberum downgraded their rating for Primark-owner Associated British Foods from ‘Buy’ to ‘Hold’ after Primark underperformed over the festive quarter.

Panmure downgraded its target price for ABF to 1900p from 2800p. Its share price currently sits at 1,892.50p after falling five per cent in the last five days.

Associated British Foods reduced its full year guidance after like-for-like sales for Primark in the UK and Ireland, which account for 45 per cent of the retailer’s sales, fell six per cent.

“Management noted a sense of shock and concern amongst the less affluent shoppers, Primark’s key customer base, immediately before and post the Budget,” analysts at Panmure said.

“With earnings sentiment turning further negative combined with risks to Primark from UK’s economic performance, we take a more cautious stance on the shares,” analysts added.

Chris Beckett, head of equity research at Quilter Cheviot, similarly noted the “significant financial strain” that UK consumers face.

Primark struggles

The relative success of its peers has further soured the case for Primark: rivals like M&S and Next managed to maintain relatively stable clothing sales over Christmas, leaving Primark’s UK performance “looking weaker by comparison”, Beckett said.

Robinhood UK lead analyst Dan Lane added that Primark is uniquely positioned to suffer more than its rivals.

There’s a “real worry” that slowing growth in UK disposable incomes could have “an outsized impact on lower-income households”, he said.

This will directly affect Primark, with around 85 per cent of its products at £10 or less.

Plus, its low-priced competitors, Shein and Temu, have the advantage of catering to the online market – Primark still doesn’t offer a transactional online platform service.

Online sales have continued to dominate those in-store, with brick-and-mortar sales up just 0.4 per cent year-on-year in December, versus an 11.1 per cent rise online.

“Click-and-collect doesn’t cut it these days and even if sales improve, it will remain a risk for the business as cheaper Chinese platforms encroach on the space as well as second-hand sites like Vinted,” Lane said.