Investors’ Chronicle: Greggs

Greggs (GRG)

Sausage roll seller Greggs warned in its fourth-quarter trading update that it is feeling the heat from “material cost inflation”. In this context, chunky revenue growth and the maintenance of full-year guidance underlines the resilience of the brand and business model.

Like-for-like sales growth of 18 per cent for the three months to the end of December helped full-year total revenue hit £1.5bn, an uplift of more than a fifth on the previous year and 30 per cent ahead of pre-pandemic. Customers are flocking to the company’s increased number of stores — 2,328 at the year-end — despite cost-of-living pressures. Greggs’ product range and pricing clearly remain attractive in the battle for custom in a recessionary environment.

And expansion continues, with another net new 150 stores expected to be opened in the 2023 financial year. Diversification is paying off, with “strong growth in digital and early evening sales”, as more of the company’s shops offer delivery and dinner options (such as pizza and goujons). A year-end cash balance of £191mn, meanwhile, is at a reassuring level.

Panmure Gordon analyst Alex Chatterton said that “there is no change to the long-term investment case” despite challenging cost inflation. We agree. Greggs is valued at a premium to the general retail sector, with the shares trading at 20 times Panmure’s 2023 earnings forecast, but this is justified by the company’s leading high-street position and its long-term growth prospects. Analysts think there is a share price uplift opportunity available for investors, with the shares 23 per cent and 13 per cent below Panmure’s and the FactSet consensus target price respectively. Buy.

Original article here: https://www.ft.com/content/e54901e8-e8d4-499a-bcfa-d15442601afe

Alex Chatterton

Director, Research Analyst, Consumer & Leisure