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Where next for AB Foods shares?

The owner of Primark unveiled an upbeat third-quarter trading statement

Primark owner Associated British Foods took a step closer to operating online at its latest trading update. Updating the market on third-quarter trading, the retailer and food producer revealed that it will launch a trial click-and-collect service later this year, selling children's products. The trial will take place in the North West in 25 of its stores.

Traffic to its new Primark website, which showcases products and enables customers to check store stock levels, is up by 60%, according to the company. However, at this stage it does not yet allow them to purchase any products. Primark has always staunchly stuck to bricks and mortar retailing.

Indeed, while chief executive George Weston said there was an opportunity to sell children's products online due to store space issues, Primark would not be moving into the online retail space. "It's very high cost, the return rate is horrible and I think it's environmentally questionable," he told the FT.

Primark sales prove resilient

In the third-quarter, group sales rose 32% to £4 billion. The company saw a strong uplift in Primark sales, which increased by 81% in the quarter to £1.7 billion. In the same period last year, the stores were closed until mid-April.

UK retail sales improved by 61%, boosted by the return of office-based working and tourism, with revenues 2% ahead of pre-Covid times. Sales in Continental Europe rose by 106% in the quarter, while US revenues were up by 34%, boosted by new store openings. Five new Primark stores are planned this year for Bologna, Chieti in Italy, Brno in Czechia, Tallaght in Ireland and in Queen's in New York.

Food sales remain resilient

Meanwhile, total food sales rose by 10% in the third-quarter due to price increases and strong ingredient sales, which were up by 24% in the quarter. In the agriculture business, price hikes made up for rising input prices, with sales up 10%. Sugar sales rose 7% and prices are expected to remain strong.

Management said that although it left the company's outlook for the full-year "unchanged", it expected "significant progress... in adjusted operating profit" and earnings per shares.

Analysts at Barclays have increased their price target on the shares from 1647p to 2300p.

The shares are down 29% this year to 1619p and some way from their three-year highs of 2704p, seen in January 2020. They have been hit by the wider market malaise and concerns over inflation. However, the food business has decent pricing power. Meanwhile, as a discount retailer, Primark remains an attractive destination for shoppers seeking bargains in the cost of living crisis. Long-term buy.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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