Associated British Foods: Sugar downgrades tough to digest

Research evidence excerpt

Associated British Foods: Sugar downgrades tough to digest

Valuation and Price Target: • Recurring closures due to COVID could

materially impact our Primark profit forecasts. Also a faster-than- expected return may provide upside to our estimates. • Inclement weather. Because

Primark is reliant on footfall on the high street, there is a great volatility in LFL growth during periods of inclement weather, as shoppers go out less

and prefer to shop online. • FX. Primark buys mainly in USD but sells primarily in EUR and GBP. A strong USD vs. a basket of its other currencies could

result in lower-than-expected Primark margins. • Poor range choice. Primark has an excellent track record of getting its ranges right. This often means

very low levels of markdown. However, if a large portion of a new range doesn't get traction, it could mean a higher percentage of markdown, which

would impact Primark's margins. • Disappointing Primark trading. If online penetration step-changes in some of Primark's core markets, it could have

a negative impact on its LFL progression. • Reputational risk in Germany. LFL growth is under pressure in Germany as the business faces some

reputational issues. These are being addressed. However, an unsuccessful outcome could result in possible store closures, with associated cost

implications.

Other Material Conflicts: Barclays Bank PLC and/or its affiliates are acting as corporate broker and financial advisor to Associated British Foods PLC

in relation to their potential demerger of Primark from its Food companies to create two separately listed businesses.

Disclaimer:

This publication has been produced by Barclays Research Department in the Investment Bank of Barclays Bank PLC and/or one or more of its affiliates