Highlights

  • FY25F adjusted pre-tax profit cut by 5.8% to GBP1.684bn.
  • Shares down 9% since April interim results.
  • Valuation drops to 5.9x EV/EBITDA, 9.6x P/E by FY27F.

Associated British Foods Plc (LSE: ABF) has been upgraded to a ‘buy’ rating by Shore Capital after a brief period under review, following its underwhelming interim results in April. The reassessment comes despite a reported 2% decline in revenue and a 10% drop in adjusted pre-tax profit in the first half of the fiscal year.

Shore Capital had initially paused coverage after the update, citing underperformance in key segments such as UK bread (Allied Bakeries), Spanish sugar (Azucarera), and bioethanol operations (Vivergo). The broker revised its FY25 forecasts downward, trimming adjusted pre-tax profit by 5.8% to GBP1.684 billion and adjusted earnings per share (EPS) to 173.5p.

Despite these headwinds, the firm acknowledged that ABF is now taking more decisive actions to address underperforming divisions. The stock’s valuation has become more appealing to Shore Capital, trading at a current EV/EBITDA multiple of 7.2 and a P/E ratio of 12.0. These are projected to decrease to 5.9 and 9.6, respectively, by FY27, making the stock relatively inexpensive in the broker’s view.

ABF shares have fallen approximately 9% since the earnings announcement on April 29. Shore Capital’s reassessment appears to be based on the belief that long-term asset quality, capital allocation, and balance sheet strength outweigh near-term earnings pressure.