Currency in GBP
Last close As at 07/06/2023
GBP26.92
▲ −44.00 (−1.61%)
Market capitalisation
GBP2,749m
Research: Consumer
Greggs’ strong sales performance in the first 19 weeks of the year is in line with management’s expectations and therefore its profit expectations for the year are unchanged, as are our forecasts. Greggs continues to benefit from underlying volume growth despite the squeeze on household budgets and high industry-wide selling price inflation, which is testament to its ongoing product innovation and initiatives to drive growth. Our discounted cash flow (DCF)-based valuation of £30.50/share is unchanged.
Greggs |
Continuation of strong trading in FY23 |
19-week trading update |
Retail |
17 May 2023 |
Share price performance
Business description
Next events
Analysts
Greggs is a research client of Edison Investment Research Limited |
Greggs’ strong sales performance in the first 19 weeks of the year is in line with management’s expectations and therefore its profit expectations for the year are unchanged, as are our forecasts. Greggs continues to benefit from underlying volume growth despite the squeeze on household budgets and high industry-wide selling price inflation, which is testament to its ongoing product innovation and initiatives to drive growth. Our discounted cash flow (DCF)-based valuation of £30.50/share is unchanged.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
1,229.7 |
145.6 |
114.3 |
97.0 |
24.1 |
3.5 |
12/22 |
1,512.8 |
148.3 |
117.5 |
59.0 |
23.5 |
2.1 |
12/23e |
1,710.8 |
161.2 |
119.1 |
59.6 |
23.1 |
2.2 |
12/24e |
1,902.9 |
183.1 |
131.7 |
65.9 |
20.9 |
2.4 |
12/25e |
2,122.5 |
202.6 |
145.8 |
72.9 |
18.9 |
2.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Volume and price driving revenue growth
Following the strong start to FY23, with year-on-year, like-for-like revenue growth in company-managed stores of 18.8% in the first nine weeks of the year, growth moderated a tad in the next 10 weeks, to 15.7%, due to a slightly stronger comparative. Total revenue for the 19 weeks to 13 May grew by 23% y-o-y to £609m, from £495m. The moderation in like-for-like growth is in line with management’s expectations and will continue through FY23 as Greggs annualises its series of price increases made in FY22. The growth rates include average selling price inflation of 12%, and pleasing volume growth as footfall and transaction numbers have increased. Management believes that competitors have been acting rationally on price increases, with some of the food-on-the-go specialists playing catch-up on prices of late. A net 37 new stores have been opened so far in the year, of the anticipated 150 new stores for the year.
FY23 forecasts unchanged
There is no change to management’s profit expectations for the year, which includes no change to guidance for underlying cost inflation of 9–10%, albeit the drivers have changed a little. Energy price inflation will be more favourable than originally anticipated, but this is offset by higher inflation on some food inputs. Energy prices are fixed through to September 2023, and food and packaging has average forward cover of four to five months. Our profit estimates for FY23 are unchanged so our outlook for more consistent profit delivery in FY23–25 than in FY22 continues.
Valuation: Steady progress
The share price has made steady progress, which is broadly in line with the wider market’s return. Greggs’ FY23 P/E multiple of 23.1x is justifiably higher than its long-term average between FY13–19 of 17.1x given its growth prospects and higher profitability. With no changes to our profit estimates, our DCF-based valuation is unchanged at £30.50/share.
Exhibit 1: Financial summary
£m |
2020 |
2021 |
2022 |
2023e |
2024e |
2025e |
||
Year-end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
811.3 |
1,229.7 |
1,512.8 |
1,710.8 |
1,902.9 |
2,122.5 |
Cost of Sales |
(299.6) |
(447.7) |
(574.5) |
(655.7) |
(732.5) |
(820.3) |
||
Gross Profit |
511.7 |
782.0 |
938.3 |
1,055.1 |
1,170.4 |
1,302.1 |
||
EBITDA |
|
|
115.4 |
259.0 |
269.9 |
305.0 |
351.9 |
394.1 |
Operating profit (before amort. and excepts.) |
|
|
(6.2) |
153.2 |
154.4 |
168.9 |
191.3 |
211.2 |
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(0.8) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
(7.0) |
153.2 |
154.4 |
168.9 |
191.3 |
211.2 |
||
Net Interest |
(6.7) |
(7.6) |
(6.1) |
(7.7) |
(8.2) |
(8.5) |
||
Profit Before Tax (norm) |
|
|
(12.9) |
145.6 |
148.3 |
161.2 |
183.1 |
202.6 |
Profit Before Tax (FRS 3) |
|
|
(13.7) |
145.6 |
148.3 |
161.2 |
183.1 |
202.6 |
Tax |
0.7 |
(28.1) |
(28.0) |
(38.7) |
(47.6) |
(52.7) |
||
Profit After Tax (norm) |
(12.2) |
117.5 |
120.3 |
122.5 |
135.5 |
149.9 |
||
Profit After Tax (FRS 3) |
(13.0) |
117.5 |
120.3 |
122.5 |
135.5 |
149.9 |
||
Average Number of Shares Outstanding (m) |
101.0 |
101.5 |
101.5 |
102.0 |
102.0 |
102.0 |
||
EPS - normalised fully diluted (p) |
|
|
(12.1) |
114.3 |
117.5 |
119.1 |
131.7 |
145.8 |
EPS - (IFRS) (p) |
|
|
(12.9) |
115.7 |
118.5 |
120.1 |
132.8 |
147.0 |
Dividend per share (p) |
0.0 |
97.0 |
59.0 |
59.6 |
65.9 |
72.9 |
||
Gross Margin (%) |
63.1 |
63.6 |
62.0 |
61.7 |
61.5 |
61.3 |
||
EBITDA Margin (%) |
14.2 |
21.1 |
17.8 |
17.8 |
18.5 |
18.6 |
||
Operating Margin (before GW and except.) (%) |
(0.8) |
12.5 |
10.2 |
9.9 |
10.1 |
9.9 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
631.0 |
622.3 |
685.1 |
819.5 |
952.2 |
1,045.5 |
Intangible Assets |
15.6 |
14.9 |
13.5 |
22.0 |
28.5 |
33.4 |
||
Tangible Assets |
345.3 |
343.8 |
390.0 |
501.0 |
612.3 |
685.7 |
||
Right-of-Use Assets |
270.1 |
263.6 |
281.6 |
296.5 |
311.4 |
326.4 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
98.7 |
266.1 |
283.0 |
259.4 |
242.7 |
276.4 |
Stocks |
22.5 |
27.9 |
40.6 |
46.3 |
51.8 |
58.0 |
||
Debtors |
39.4 |
37.6 |
50.2 |
56.8 |
63.1 |
70.4 |
||
Cash |
36.8 |
198.6 |
191.6 |
155.7 |
127.2 |
147.4 |
||
Other |
0.0 |
2.0 |
0.6 |
0.6 |
0.6 |
0.6 |
||
Current Liabilities |
|
|
(144.1) |
(206.9) |
(244.1) |
(273.8) |
(302.0) |
(333.9) |
Creditors |
(91.1) |
(153.4) |
(191.7) |
(218.8) |
(244.4) |
(273.7) |
||
Leases |
(48.6) |
(49.3) |
(48.8) |
(51.4) |
(54.0) |
(56.6) |
||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(4.4) |
(4.2) |
(3.6) |
(3.6) |
(3.6) |
(3.6) |
||
Long Term Liabilities |
|
|
(264.0) |
(252.3) |
(284.3) |
(296.6) |
(309.0) |
(321.3) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Leases |
(243.1) |
(233.9) |
(252.5) |
(264.8) |
(277.2) |
(289.5) |
||
Other long term liabilities |
(20.9) |
(18.4) |
(31.8) |
(31.8) |
(31.8) |
(31.8) |
||
Net Assets |
|
|
321.6 |
429.2 |
439.7 |
508.6 |
584.0 |
666.7 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
61.6 |
312.1 |
272.3 |
323.8 |
369.8 |
413.9 |
Net Interest |
(6.7) |
(7.4) |
(6.1) |
(7.7) |
(8.2) |
(8.5) |
||
Tax |
(10.7) |
(19.2) |
(13.3) |
(38.7) |
(47.6) |
(52.7) |
||
Capex |
(59.8) |
(54.0) |
(102.4) |
(200.0) |
(220.0) |
(200.0) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Equity financing |
3.7 |
4.6 |
3.1 |
3.1 |
3.1 |
3.1 |
||
Dividends |
0.0 |
(15.3) |
(98.5) |
(60.7) |
(67.2) |
(74.4) |
||
Borrowings and lease liabilities |
(42.1) |
(49.0) |
(52.7) |
(55.6) |
(58.4) |
(61.2) |
||
Other |
(0.5) |
(10.0) |
(9.4) |
0.0 |
0.0 |
(0.0) |
||
Net Cash Flow |
(54.5) |
161.8 |
(7.0) |
(35.9) |
(28.6) |
20.2 |
||
Opening cash |
|
|
91.3 |
36.8 |
198.6 |
191.6 |
155.7 |
127.2 |
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing cash |
|
|
36.8 |
198.6 |
191.6 |
155.7 |
127.2 |
147.4 |
Closing net debt/(cash) |
|
|
(36.8) |
(198.6) |
(191.6) |
(155.7) |
(127.2) |
(147.4) |
Closing net debt/(cash) including leases |
|
|
254.9 |
84.6 |
109.7 |
160.5 |
204.0 |
198.7 |
Source: Greggs, Edison Investment Research
|
|
Research: Consumer
Britvic’s H1 results have demonstrated the business’s resilience, with growth in underlying revenue and EBIT margin, and only a modest volume decline during H1. Britvic has continued to execute pricing actions successfully throughout the period, with management also helping to mitigate inflationary pressures through cost efficiencies. Britvic’s brand performance remains strong, and the business continues to invest in growth capacity. The company has announced a further share buyback programme of up to £75m over the next 12 months.
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