Analysts at Panmure Liberum have downgraded their rating for Primark-owner Associated British Foods from ‘Buy’ to ‘Hold’ following underperformance over the festive quarter.
The target price for ABF has been reduced to 1900p from 2800p by Panmure, with its share price currently standing at 1,892.50p after a five per cent drop in the last five days, as reported by .
Following a six per cent fall in like-for-like sales for Primark in the º£½ÇÊÓƵ and Ireland, which makeup 45 per cent of the retailer’s sales, Associated British Foods has lowered its full year guidance. "Management noted a sense of shock and concern amongst the less affluent shoppers, Primark’s key customer base, immediately before and post the Budget," said analysts at Panmure.
They added: "With earnings sentiment turning further negative combined with risks to Primark from º£½ÇÊÓƵ’s economic performance, we take a more cautious stance on the shares," Chris Beckett, head of equity research at Quilter Cheviot, also highlighted the "significant financial strain" that º£½ÇÊÓƵ consumers are facing. The relative success of competitors such as M&S and Next, who managed to maintain relatively stable clothing sales over Christmas, has made Primark’s º£½ÇÊÓƵ performance appear "looking weaker by comparison", according to Beckett.
Robinhood º£½ÇÊÓƵ lead analyst Dan Lane suggested that Primark is uniquely positioned to suffer more than its rivals.
There's a "real worry" that slowing growth in º£½ÇÊÓƵ disposable incomes could disproportionately affect lower-income households, according to industry experts. This is particularly concerning for Primark, as approximately 85% of its offerings are priced at £10 or less.
Moreover, the retailer faces stiff competition from low-priced online rivals such as Shein and Temu, especially since Primark has yet to launch a transactional online platform. Online sales have been outpacing physical store purchases, with in-store sales seeing a mere 0.4% increase year-on-year in December, compared to an 11.1% surge in online sales.
"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," commented Lane.
