AB Foods is finally unpicking one of the market’s unlikelier corporate combinations. The group is to separate Primark – Penneys, to everyone in Ireland – from its food businesses in a long-signalled demerger.
Expected to complete by the end of 2027, it will leave investors with two FTSE 100 companies – one fashion operation and one food portfolio spanning everything from tea to bread and sugar.
The logic is simple. Conglomerates tend to trade at a discount and sceptics have long said AB Foods’ mix risks diluting management focus across very different businesses.
In particular, many analysts see potential for a Primark valuation re-rating, with bullish observers saying a stand-alone operation could command a valuation multiple that is closer to H&M (it trades on eight times Ebitda) or even Next (11).
READ MORE
Perhaps, but such arguments have been doing the rounds since November’s announcement that AB Foods was reviewing its group structure, only for the company’s market value to fall from £16 billion (€18.45 billion) to below £13 billion.
Share price weakness reflects an unforgiving backdrop, with AB Foods just reporting an 18 per cent fall in operating profit and weaker European trading at Primark, which is battling fierce competition from online rivals such as Shein and Temu.
And financial backdrop aside, not everyone is convinced about the demerger. Quilter Cheviot’s Chris Beckett called it “more about structure than strategy”. Retail analyst Richard Hyman was blunter, saying he still did “not really understand the rationale”.
The obvious counterpoint is that Primark would benefit from undivided management attention and a board focused solely on retail execution – essentially, fewer discussions about sugar and more about shopping.
