Primark spin-off, robotics & US equity funds: Companies and Markets show
The Companies and Markets show covers three main topics: Associated British Foods' planned spin-off of Primark into a separate FTSE 100 entity, the growing potential of robotics and AI convergence across multiple industries, and active US equity fund options as the Magnificent Seven stocks underperform. Each segment explores both opportunities and significant headwinds facing companies and investors in these areas.
Summary
The show opens with a discussion of Associated British Foods (ABF) announcing plans to demerge Primark into a standalone entity via a dividend demerger, with both businesses expected to become separate FTSE 100 constituents before end of 2027. The Weston family's Whittington investment vehicle will retain majority ownership of both. The demerger is partly motivated by the classic 'conglomerate discount' problem — ABF has long struggled to be properly valued by investors due to its unusual food-and-fashion combination. George Weston will lead the food business and Owen Tonge will continue as Primark CEO. Current trading is weak on both sides: group sales and profits are down ~2%, with one week in April described as 'a shocker.' The food division faces losses in sugar, a 20% profit decline in grocery, and weakness in ingredients. The sugar business in particular has no visible bottom, with pressure from weight loss drug trends and structural demand shifts. A planned acquisition of Hovis to combine with Kingsmill was characterised as defensive consolidation rather than growth, as packaged bread faces structural decline and own-label competition. Primark faces margin pressure from ~30% rises in polyester prices due to the Iran war, and its lower-income customer base is pulling back on discretionary clothing spend. The case for Primark as a standalone is longer-term: it is growing UK market share, investing in store rollout, and may eventually develop a more meaningful online offer.
The robotics segment explores how the sector may be reaching an inflection point driven by the convergence of AI — particularly agentic AI — with traditional robotics hardware. Robots have been present in factories since the 1960s, but future humanoid robots are expected to learn from situations and act independently, making the technology far more scalable and applicable beyond manufacturing. Barclays research is cited as highlighting a shift from software to hardware investment models, which brings higher capital intensity, front-loaded costs, and lower gross margins. Demographic trends — aging workforces and labour shortages in Western economies — are a key structural driver. John Deere is highlighted as an early adopter, offering near-fully automated agricultural equipment combining GPS, sensor technology, and AI to improve crop yields and reduce input costs. Intuitive Surgical's Da Vinci robotic surgery system is noted for its dominant market position in minimally invasive surgery, though it trades at 47x forward earnings with a PEG ratio of ~4.5 and a price-to-sales of ~15, reflecting high growth expectations already priced in.
The final segment examines US equity fund options in a context where the Magnificent Seven have underperformed recently, potentially improving the odds for active managers to beat the index. Pershing Square (PSH), Bill Ackman's highly concentrated trust with ~12-13 positions, is flagged as an option for investors comfortable with concentrated bets. JP Morgan American (JAM) offers a more balanced approach, slightly underweight technology but still holding Magnificent Seven names, and has outperformed the S&P 500 over five years. For income-focused investors, North American Income Trust (NAIT) yields ~2.9% and focuses on 'HALO' companies — heavy assets, low obsolescence — such as utilities and infrastructure that are difficult for AI to disrupt. For small and mid-cap exposure, Brown Advisory US Smaller Companies (BASC) and JP Morgan US Smaller Companies (JUSC) are mentioned, with their performance outlook tied to whether the Fed delivers rate cuts and how geopolitical conditions evolve.
Key Insights
- Erin Withey argued that ABF has long suffered a 'conglomerate discount' due to its unusual combination of food and fashion businesses, and that separating Primark should allow investors to value each business more clearly.
- The Iran war has caused approximately a 30% increase in polyester prices, which disproportionately pressures Primark because, unlike premium retailers such as M&S, it cannot easily pass input cost increases on to its price-sensitive, lower-income customer base.
- Jefferies analysts were cited as saying there is 'no bottom in sight' for ABF's sugar business, which is currently loss-making and acting as a persistent drag on the broader food division's earnings.
- The planned Hovis acquisition to combine with Kingsmill was characterised as defensive consolidation rather than a growth move, with the CMA concluding both businesses require the merger to remain profitable amid structural decline in packaged bread demand.
- Mark Robinson argued that the convergence of agentic AI with robotics hardware is the key inflection point that will make robots far more scalable — enabling them to learn from situations and act independently with limited human supervision, expanding applications well beyond factories.
- Barclays research cited in the robotics piece highlighted a shift in investor focus from software to hardware, but noted this brings a fundamentally different financial model with higher capital intensity, front-loaded costs, and lower gross margins compared to capital-light software businesses.
- Val Cipriani argued that active US equity managers now have a better chance of outperforming the index because the dominance of the Magnificent Seven — which made passive funds hard to beat — is showing signs of weakening in 2025.
- North American Income Trust's focus on 'HALO' companies — heavy assets, low obsolescence, such as utilities and infrastructure with government-backed or long-term contracts — was presented as a strategy specifically designed to provide income and stability in areas difficult for AI to disrupt or replace.
Topics
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