AB Foods considers spinning off Primark after annual profits fall

Dan Coatsworth, head of markets at AJ Bell, said: “The break-up that Associated British Foods said would never happen is now on the cards.

“It has long argued that having a collection of businesses was better than splitting itself up into individual components.

“That meant keeping Primark within a broader conglomerate structure that also includes food interests.

“The argument went that if one part wasn’t doing well, the others would act as a cushion to keep everything hunky dory.

“Over the years, many people have expressed a desire to only invest in Primark, rather than have its rapid growth diluted by non-retail interests.

“While Primark continues to expand, growth has been harder to achieve amidst a more challenging consumer environment.

“That’s a factor affecting most retailers rather than an indication of Primark going wrong.

“The big question is what’s triggered a rethink by the board. The fact the share price hasn’t really gone anywhere in the past two years could be a factor.

“Over the past five years, Next has delivered a 130 per cent share price gain versus just 36 per cent from Associated British Foods.

“That sort of underperformance must have caused considerable frustration to Primark’s owner.

“The board now seems to have finally woken up to the fact that it might benefit from splitting into two, as the component parts appeal to different types of investors.

“Primark might even command a much higher valuation as a standalone listed entity.

“Associated British Foods says it is considering all options but essentially that means the wheels are being greased for a corporate break-up.

“It’s all the rage at present, with the likes of Unilever, Kraft Heinz and Warner Bros Discovery among those in the process of undertaking a demerger.

“The idea of ‘slimming to greatness’ is based on the principle that big companies might benefit from having a tighter focus rather than spinning three or four plates at the same time.

“Investors like it, as they can pick and choose the parts of a business they want to back or avoid.

“Divisional management are also free to make more entrepreneurial decisions rather than having a parent company pulling the strings.”