Associated British Foods (ABF) says it may finally do what it has long resisted: spin off Penneys/Primark.
The fashion chain has long been the jewel in the UK conglomerate’s crown, yet for decades it has been shackled to a sprawling group of groceries, ingredients and commodities that investors struggle to value.
Many analysts suggest ABF, which is valued at £16 billion (€18.2 billion), suffers from a so-called conglomerate discount: the market’s tendency to reward corporate focus more than breadth.
ABF has flirted with a separation before but was rebuffed by Primark founder Arthur Ryan, who preferred to stay out of the spotlight. ABF revisited the idea in 2009, after Ryan retired, and again in 2019, but shifting market conditions saw the idea shelved once more.
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Even now, the timing is far from perfect, with fast-fashion rivals like Shein and Temu eroding Primark’s edge.
Still, investors’ underwhelming reaction – shares dipped on results day, a reaction perhaps clouded by the numbers – was at odds with the broadly positive response from analysts and commentators.
The scale of Primark’s international operations – it has 476 stores in 18 countries – means it “makes sense” for it to be a standalone company, said Barclays. ABF’s food arm attracts little attention and Primark appears to trade at a significant discount to its fashion retail peers, said Panmure Liberum, which reckons there is an overall conglomerate discount of about 10 per cent.
The FT’s Lex column was especially enthused, suggesting a spin-off could unlock some 25 per cent of hidden value.
Too optimistic? Perhaps. Too late? Many think the spin-off should have occurred years ago. Still, some will see it as a case of better late than never, with a standalone Primark realising value long buried in ABF’s breadth.
