Currency in GBP
Last close As at 09/06/2023
GBP26.94
▲ 2.00 (0.07%)
Market capitalisation
GBP2,751m
Research: Consumer
Greggs’ impressive sales performance in Q322 enabled it to maintain its FY22 PBT guidance, despite the increasing pressures on consumer discretionary income and (maintained) input cost inflation. Growth is driven by momentum in its own initiatives, eg menu innovation and trading in new channels and dayparts, which is helping Greggs to gain market share. Our DCF-based valuation of £29.70/share is unchanged.
Greggs |
A ‘relative winner’ |
Q322 trading update |
Retail |
4 October 2022 |
Share price performance
Business description
Next events
Analysts
Greggs is a research client of Edison Investment Research Limited |
Greggs’ impressive sales performance in Q322 enabled it to maintain its FY22 PBT guidance, despite the increasing pressures on consumer discretionary income and (maintained) input cost inflation. Growth is driven by momentum in its own initiatives, eg menu innovation and trading in new channels and dayparts, which is helping Greggs to gain market share. Our DCF-based valuation of £29.70/share is unchanged.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
811.3 |
(12.9) |
(12.1) |
0.0 |
N/A |
N/A |
12/21 |
1,229.7 |
145.6 |
114.3 |
97.0 |
16.6 |
5.1 |
12/22e |
1,451.0 |
146.8 |
118.0 |
59.0 |
16.0 |
3.1 |
12/23e |
1,654.7 |
165.3 |
122.0 |
61.0 |
15.5 |
3.2 |
12/24e |
1,930.8 |
188.0 |
135.1 |
67.6 |
14.0 |
3.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q322 revenue: U-shaped
In the 13 weeks to 1 October, like-for-like sales (l-f-l) sales growth in company managed stores was 9.7% and total sales growth was 14.6%. Following a strong July (+13.1% l-f-l), growth slowed in August (+7.1% l-f-l) due to annualising the staycation effect from FY21 and likely some lost revenue due to the 2022 heatwave. Momentum improved in September to 8.7% l-f-l, which management estimates was negatively affected by the royal funeral to the tune of 3.8%, implying double-digit underlying growth. With no distinguishable changes in consumer behaviour, Greggs is benefiting from high single-digit price inflation, and volume growth from its initiatives and market share gains. New store openings continue apace, with 90 of the annual target of around 150 net new stores by the end of Q322. Management expects a busy autumn with respect to new store openings.
Profit forecasts maintained
Management has reiterated its financial guidance for the year, ie no material profit progression versus FY21 due to the return of costs (business rates) to the business, investment in growth initiatives and cost inflation. Guidance for the latter has been maintained at 9%. Management believes cost inflation will persist into FY23, with a slightly different skew towards higher staff cost inflation versus other inputs. Forward cover of food inputs is currently at the lower end of the typical four to six months rolling forward cover, and energy is significantly covered through Q123 at average prices below the recently announced price cap. Price inflation should provide greater support in FY23 due to under-recovery of food input cost inflation earlier in FY22, and therefore FY23 estimates are unchanged. The phasing of capex is changing, shifting £50m of spend on the southern campus from FY22 to FY23 due to a lengthier procurement process for the land, with no implications for capacity.
Valuation: Discount to long-term average multiples
Our DCF-based valuation is unchanged at £29.70/share. The FY22e and FY23e P/E multiples of 16.0x and 15.5x are attractive versus the long-term average since FY13 of 17.9x.
Exhibit 1: Financial summary
£m |
2020 |
2021 |
2022e |
2023e |
2024e |
||
Year-end December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
811.3 |
1,229.7 |
1,451.0 |
1,654.7 |
1,930.8 |
Cost of Sales |
(299.6) |
(447.7) |
(540.6) |
(622.1) |
(732.5) |
||
Gross Profit |
511.7 |
782.0 |
910.3 |
1,032.6 |
1,198.2 |
||
EBITDA |
|
|
115.4 |
259.0 |
267.1 |
307.5 |
355.1 |
Operating profit (before amort. and excepts.) |
|
|
(6.2) |
153.2 |
154.4 |
173.0 |
196.1 |
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(0.8) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
(7.0) |
153.2 |
154.4 |
173.0 |
196.1 |
||
Net Interest |
(6.7) |
(7.6) |
(7.5) |
(7.6) |
(8.1) |
||
Profit Before Tax (norm) |
|
|
(12.9) |
145.6 |
146.8 |
165.3 |
188.0 |
Profit Before Tax (FRS 3) |
|
|
(13.7) |
145.6 |
146.8 |
165.3 |
188.0 |
Tax |
0.7 |
(28.1) |
(25.7) |
(39.7) |
(48.9) |
||
Profit After Tax (norm) |
(12.2) |
117.5 |
121.1 |
125.6 |
139.1 |
||
Profit After Tax (FRS 3) |
(13.0) |
117.5 |
121.1 |
125.6 |
139.1 |
||
Average Number of Shares Outstanding (m) |
101.0 |
101.5 |
101.7 |
102.0 |
102.0 |
||
EPS - normalised fully diluted (p) |
|
|
(12.1) |
114.3 |
118.0 |
122.0 |
135.1 |
EPS - (IFRS) (p) |
|
|
(12.9) |
115.7 |
119.1 |
123.1 |
136.3 |
Dividend per share (p) |
0.0 |
97.0 |
59.0 |
61.0 |
67.6 |
||
Gross Margin (%) |
63.1 |
63.6 |
62.7 |
62.4 |
62.1 |
||
EBITDA Margin (%) |
14.2 |
21.1 |
18.4 |
18.6 |
18.4 |
||
Operating Margin (before GW and except.) (%) |
(0.8) |
12.5 |
10.6 |
10.5 |
10.2 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
631.0 |
622.3 |
694.5 |
883.6 |
1,010.0 |
Intangible Assets |
15.6 |
14.9 |
26.1 |
34.6 |
41.1 |
||
Tangible Assets |
345.3 |
343.8 |
390.2 |
556.2 |
661.5 |
||
Right-of-Use Assets |
270.1 |
263.6 |
278.2 |
292.8 |
307.4 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
98.7 |
264.1 |
267.9 |
193.3 |
198.1 |
Stocks |
22.5 |
27.9 |
33.7 |
38.8 |
45.7 |
||
Debtors |
39.4 |
37.6 |
44.4 |
50.6 |
59.0 |
||
Cash |
36.8 |
198.6 |
189.8 |
103.9 |
93.4 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(144.1) |
(206.9) |
(238.7) |
(266.7) |
(304.5) |
Creditors |
(91.1) |
(153.4) |
(185.2) |
(213.2) |
(251.0) |
||
Leases |
(48.6) |
(49.3) |
(49.3) |
(49.3) |
(49.3) |
||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(4.4) |
(4.2) |
(4.2) |
(4.2) |
(4.2) |
||
Long Term Liabilities |
|
|
(264.0) |
(252.3) |
(266.9) |
(281.5) |
(296.1) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Leases |
(243.1) |
(233.9) |
(248.5) |
(263.1) |
(277.7) |
||
Other long-term liabilities |
(20.9) |
(18.4) |
(18.4) |
(18.4) |
(18.4) |
||
Net Assets |
|
|
321.6 |
427.2 |
456.7 |
528.7 |
607.5 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
61.6 |
312.1 |
290.5 |
328.2 |
381.6 |
Net Interest |
(6.7) |
(7.4) |
(6.9) |
(7.6) |
(8.1) |
||
Tax |
(10.7) |
(19.2) |
(25.7) |
(39.7) |
(48.9) |
||
Capex |
(59.8) |
(54.0) |
(119.0) |
(255.0) |
(214.0) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Equity financing |
3.7 |
4.6 |
4.6 |
4.6 |
4.6 |
||
Dividends |
0.0 |
(15.3) |
(100.8) |
(62.3) |
(69.0) |
||
Borrowings and lease liabilities |
(42.1) |
(49.0) |
(51.4) |
(54.1) |
(56.8) |
||
Other |
(0.5) |
(10.0) |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
(54.5) |
161.8 |
(8.8) |
(85.9) |
(10.5) |
||
Opening net debt/(cash) |
|
|
91.3 |
36.8 |
198.6 |
189.8 |
103.9 |
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
36.8 |
198.6 |
189.8 |
103.9 |
93.4 |
Closing net debt/(cash) excluding leases |
|
|
(36.8) |
(198.6) |
(189.8) |
(103.9) |
(93.4) |
Closing net debt/(cash) including leases |
|
|
254.9 |
84.6 |
108.0 |
208.5 |
233.6 |
Source: Company accounts, Edison Investment Research
|
|
Research: TMT
WANdisco has announced a $7.1m follow-on agreement with a large European automotive components supplier. This takes total disclosed bookings this year to $59.1m versus our FY forecast of $60m, meaning that upside to this KPI forecast now looks very probable. The Q3 update will give us more visibility on the rate at which customers are starting to use this data – which will see bookings flow through to the P&L. We will revise our estimates at that stage but see sizable uplift potential at all KPI levels, particularly in the 2023 timescale.
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