Greggs plc — A ‘relative winner’

Greggs (LSE: GRG)

Currency in GBP

Last close As at 25/01/2023

GBP26.48

−28.00 (−1.05%)

Market capitalisation

GBP2,733m

Research: Consumer

Greggs plc — A ‘relative winner’

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.

Russell Pointon

Written by

Russell Pointon

Director, Consumer

Consumer

Greggs

A ‘relative winner’

Q322 trading update

Retail

4 October 2022

Price

1,891p

Market cap

£1,930m

Net cash (£m) at 2 July 2022 (excluding IFRS 16 liabilities)

145.7

Shares in issue

102.1m

Free float

100%

Code

GRG

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(7.2)

(5.3)

(41.9)

Rel (local)

(1.2)

(0.9)

(37.4)

52-week high/low

3416p

1673p

Business description

With 2,271 shops and 12 main manufacturing and distribution centres, Greggs is the leading UK ‘food-on-the-go’ retailer. It uses vertical integration to offer differentiated products at competitive prices. Its ambition is to grow revenue to £2.4bn by FY26.

Next events

FY22 trading update

January 2023

FY22 results

March 2023

Analysts

Russell Pointon

+44 (0)20 3077 5700

Sara Welford

+44(0)20 3077 5700

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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


General disclaimer and copyright

This report has been commissioned by Greggs and prepared and issued by Edison, in consideration of a fee payable by Greggs. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Greggs and prepared and issued by Edison, in consideration of a fee payable by Greggs. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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