Associated British Foods stock rises as Primark growth and Hovis deal balance sugar drag

Associated British Foods plc (LSE: ABF) shares gained traction in London trading this week, closing at 1,970.50p on 14 September, up 1.83% from the prior close. The move followed the FTSE 100 company’s 10 September 2025 trading update, which outlined steady second-half performance anchored by Primark’s resilience and bolstered by strategic steps in food and sugar restructuring. The rally suggested cautious investor confidence despite persistent headwinds from weak European demand, restructuring costs, and sugar losses.

Why did Associated British Foods shares gain after the September trading update?

The stock uplift reflected investor recognition that the diversified business is managing through consumer caution, inflationary pressures and geopolitical uncertainty better than feared. Chief Executive George Weston highlighted that the group’s second-half results aligned with expectations, with Primark showing “improved trading in the UK and strong sales growth in the US,” while softer continental Europe remained a drag.

The update also revealed high-profile portfolio changes: the decision to shut down the Vivergo bioethanol plant after failing to secure UK government support, restructuring of the Spanish sugar arm, and the agreement by Allied Bakeries to acquire Hovis Group Limited. Each of these moves signaled decisive action to streamline operations and strengthen long-term sustainability.

Market participants judged the trading update as neutral-to-positive. With shares still trading below their five-year peak above 2,300p seen in early 2022, institutional investors saw reason to hold positions, while some retail investors speculated on recovery potential given Primark’s ongoing expansion and Hovis synergies.

How is Primark performing in the UK, Europe, and US in the second half of 2025?

Primark remains the jewel in Associated British Foods’ crown. In the second half (H2), Primark sales grew around 1%, with like-for-like sales down roughly 2%. The modest headline numbers disguised striking regional differences.

In the UK and Ireland, sales rose 1% in H2, improving on the first half thanks to womenswear strength, digital engagement, and favorable Easter trading. Primark’s market share ticked up from 6.6% to 6.8%, a notable achievement as the overall UK clothing market contracted. Like-for-like sales excluding estate changes were close to flat, underlining the defensive nature of the offer in a weak economy.

Continental Europe was mixed. Spain and Portugal delivered 2% growth, buoyed by new store openings and outperformance against a weaker Spanish clothing market. France and Italy, however, posted 4% declines in H2. Northern Europe, which includes Germany, the Netherlands, Belgium and Austria, saw sales fall 2%, though restructuring of German and Dutch stores has improved densities and profitability. Central and Eastern Europe shone, with sales up 9% on the back of aggressive store expansion.

The United States stood out as Primark’s growth engine, with H2 sales surging 23%. New store openings, including the chain’s first in Tennessee, helped fuel the momentum. The value-focused proposition resonated with US consumers navigating cost-of-living pressures. Importantly, Primark is preparing for Middle East entries in late 2025 and early 2026 through a franchise model, beginning with Kuwait and Dubai.

Primark’s adjusted operating margin is expected to hold broadly in line with last year, though second-half margins will trail the first half due to phasing of one-off benefits. This margin resilience reinforced investor comfort with the retail model.

What strategic shifts are reshaping Associated British Foods’ grocery division?

The grocery arm turned in a broadly flat performance in H2. Strength in international brands like Twinings and Ovaltine offset weakness in Allied Bakeries and US oils. Twinings delivered volume-led growth through product innovation and marketing, while Ovaltine grew from portfolio expansion and price increases to counter cocoa inflation.

The headline development was the agreement for Allied Bakeries to acquire Hovis. Subject to regulatory approval, the deal will combine two legacy bakery operations, creating potential for significant cost synergies in production and distribution. ABF indicated the integration would enable innovation and lead to a more sustainable UK bakeries business.

Restructuring costs meant that grocery adjusted operating profit will come in slightly below earlier forecasts. Still, long-term investor sentiment tilted positive: the Hovis deal was seen as a strategic necessity to consolidate a fragmented UK bakery market under competitive and inflationary pressures.

Why does sugar remain a structural challenge for ABF and what are the implications of Vivergo’s closure?

The sugar division remains the group’s most troubled segment. Sales are expected to decline about 10% in H2, with profitability hit by weak European sugar prices and high beet costs. For the full year, ABF projects an adjusted operating loss of £40 million including the Vivergo bioethanol business.

The closure of Vivergo followed the UK government’s refusal to provide the support needed to make the plant profitable. The closure, together with restructuring in Spain, triggered £200 million of restructuring and impairment charges, £50 million of which are cash costs.

In Africa, performance was uneven: Malawi and Eswatini reported good growth, while Zambia and South Africa continued to recover slowly from drought-driven disruptions. Tanzania’s business was challenged by heavy sugar imports, though a new mill expected in early FY26 could alter the outlook.

Looking forward, ABF expects lower contracted beet prices in Europe to help in 2026, but sugar prices remain below earlier expectations, pushing back the timeline for profitability recovery.

How did ingredients and agriculture contribute to the group’s overall results?

Ingredients provided stability. AB Mauri, the yeast and bakery ingredients business, enjoyed underlying growth across most markets. The division benefited from the consolidation of a speciality yeast acquisition. ABF Ingredients (ABFI) also performed well in enzymes and nutrition. Overall adjusted operating profit in Ingredients was slightly ahead of earlier expectations, offsetting some drag from sugar.

Agriculture saw H2 sales rise 1%, led by speciality feed and additives, though compound feed remained flat. Operating profit, however, dropped significantly due to weaker performance at Frontier, ABF’s joint venture, impacted by severe weather and one-off charges.

What does sentiment analysis suggest about Associated British Foods’ stock after the trading update?

The share price recovery to 1,970.50p positioned Associated British Foods within its mid-range over the past year. Institutional sentiment was cautiously constructive. Long-only funds welcomed Primark’s US growth story and bakery consolidation strategy. Hedge funds remained wary of sugar headwinds, but analysts indicated that decisive restructuring actions now limit downside risks.

Flows on the London Stock Exchange suggested modest institutional buying after the update, with some short covering adding to momentum. Retail investor sentiment on forums highlighted Primark’s resilience and the potential upside of Hovis integration, though many noted that inflation, sugar volatility and geopolitical uncertainty keep ABF in “hold” territory rather than a clear “buy.”

What is the outlook for ABF’s November full-year results and beyond?

The company will report full-year numbers on 4 November 2025, covering the 52 weeks to 13 September. Analysts expect adjusted operating profit to be broadly flat year on year, with stable margins at Primark, weaker results in sugar, and some upside from Ingredients.

Strategically, 2026 is set to showcase the benefits of the current restructuring cycle. The group is investing in digital retail, expanding its store footprint in the US and Middle East, and consolidating its UK bakery operations. The sugar division will remain a swing factor, but with restructuring charges now largely absorbed, investors expect a gradual recovery trajectory.

Longer term, Associated British Foods remains positioned as a defensive consumer staples play with upside from Primark’s global expansion. The diversified model offers a hedge against sector-specific risks, though structural challenges in sugar and agricultural volatility will continue to test investor patience.