RBC cuts ABF recommendation on Primark weakness

Primark's lack of sales progress at existing stores has prompted analysts at RBC Capital Markets to cut their rating on Associated British Foods.

The bank reduced its recommendation on ABF, Primark's parent, to "sector perform" from "outperform" and cut its price target and estimates for annual earnings. ABF shares fell 1.3% to £28.26 at 13:18 GMT.

The analysts, led by Richard Chamberlain, said Primark's high volume density at its stores could be making it difficult for the budget fashion retailer to squeeze out higher like-for-like sales. Primark also has no online sales operation and may take a long time to catch on in the US, where it has been expanding with no brand recognition.

RBC cut its price target for ABF, which owns Primark and smaller food and sugar businesses, to £31 from £35 and reduced its estimate for ABF's annual earnings per share by 2-3%. Primark like-for-like sales are likely to be flat this year, they added. RBC's previous sales estimate was for 1.5% growth.

The analysts said: "We remain attracted to the long term growth potential of Primark. However, we think its rating may continue to be compromised by a lack of [like-for-like] sales progress for existing stores."