Greggs — Encouraging start to FY24

Greggs (LSE: GRG)

Last close As at 22/05/2024

GBP28.44

0.00 (0.00%)

Market capitalisation

GBP2,837m

More on this equity

Research: Consumer

Greggs — Encouraging start to FY24

Greggs’ trading update for the first 19 weeks of the year shows that the company is driving superior revenue growth from its key initiatives of growing space, delivery and evening sales and leveraging the app along with its continuous menu enhancements, despite what has continued to be a challenging backdrop for consumers. The strong revenue growth on top of a tough comparative from the prior year includes both volume and price growth, which compares very well versus many other consumer-facing companies.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

Greggs

Encouraging start to FY24

19 weeks trading update

Retail

14 May 2024

Price

£27.78

Market cap

£2,840m

Net cash (£m) at 31 December 2023 (excluding IFRS 16 liabilities)

195.3

Shares in issue

102.3m

Free float

100%

Code

GRG

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.3

5.2

(1.2)

Rel (local)

(2.7)

(5.6)

(8.8)

52-week high/low

£28.78

£22.82

Business description

With 2,500 shops and 12 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

H124 results

30 July 2024

Q324 trading update

1 October 2024

Analysts

Russell Pointon

+44 (0)20 3077 5700

Milo Bussell

+44 (0)20 3077 5700

Greggs is a research client of Edison Investment Research Limited

Greggs’ trading update for the first 19 weeks of the year shows that the company is driving superior revenue growth from its key initiatives of growing space, delivery and evening sales and leveraging the app along with its continuous menu enhancements, despite what has continued to be a challenging backdrop for consumers. The strong revenue growth on top of a tough comparative from the prior year includes both volume and price growth, which compares very well versus many other consumer-facing companies.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/22

1,512.8

148.3

117.5

59.0

23.7

2.1

12/23

1,809.6

167.7

123.8

102.0

22.4

3.7

12/24e

2,013.6

182.8

131.1

65.5

21.2

2.4

12/25e

2,230.9

201.4

144.4

72.2

19.2

2.6

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items.

Strong compound growth

In the first 19 weeks of the year, to 11 May, Greggs delivered strong year-on-year revenue growth of c 14% to £693m, which compounds c 23% growth in the same period last year. Although there appears to be some slowing in like-for-like revenue growth in company-managed stores in the last 10 weeks (7.4% growth in 19 weeks versus 8.2% in the first eight weeks of the year), this reflects higher transaction volume growth in January and relatively stable transaction growth in the rest of the period. Management believes it has taken market share in the food-on-the-go market again in the first quarter of the year. The company is still enjoying the benefits from price rises made in June and December 2023, with some further modest and targeted increases expected later in the year to get to full recovery of the expected input cost inflation. Management’s expectations for input cost inflation of 4–5% in FY24 are unchanged. The inflation is driven by staff costs while there is already deflation in food input prices and energy prices are starting to deflate.

No changes to estimates

The company is progressing well against its own expectations, which are unchanged for the year, and our own estimates. Our forecast for 11% y-o-y revenue growth in FY24 looks well-supported given the performance reported above, easier comparatives through the end of the year, and despite a smaller benefit from price inflation this year than last year as input cost pressures reduce.

Valuation: In line with recent multiples

The share price has increased by c 6% year-to-date, modestly behind the UK market return of 9%. The prospective P/E multiple for FY24 of 21.2x is at a premium to the average multiple since FY15 of 19.0x, but in the middle of more recent (FY19 onwards) average multiples that have ranged between 19x and 23x, reflecting the expected strong growth profile as the company increases its market penetration and trading in new dayparts.

Exhibit 1: Financial summary

£m

2020

2021

2022

2023

2024e

2025e

2026e

Year-end December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

811.3

1,229.7

1,512.8

1,809.6

2,013.6

2,230.9

2,465.1

Cost of Sales

-299.6

-447.7

-574.5

-710.5

-798.2

-889.5

-987.8

Gross Profit

511.7

782.0

938.3

1,099.1

1,215.4

1,341.4

1,477.2

EBITDA

 

 

115.4

259.0

269.9

299.2

344.5

385.0

412.7

Operating profit (before amort. and excepts.)

 

 

-6.2

153.2

154.4

171.7

190.5

212.6

229.9

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

-0.8

0.0

0.0

20.6

0.0

0.0

0.0

Operating Profit

-7.0

153.2

154.4

192.3

190.5

212.6

229.9

Net Interest

-6.7

-7.6

-6.1

-4.0

-7.7

-11.2

-11.7

Profit Before Tax (norm)

 

 

-12.9

145.6

148.3

167.7

182.8

201.4

218.2

Profit Before Tax (FRS 3)

 

 

-13.7

145.6

148.3

188.3

182.8

201.4

218.2

Tax

0.7

-28.1

-28.0

-41.0

-47.5

-52.4

-56.7

Profit After Tax (norm)

-12.2

117.5

120.3

126.7

135.2

149.0

161.5

Profit After Tax (FRS 3)

-13.0

117.5

120.3

142.5

135.2

149.0

161.5

Average Number of Shares Outstanding (m)

101.0

101.5

101.5

101.3

102.2

102.2

102.2

EPS - normalised fully diluted (p)

 

 

(12.1)

114.3

117.5

123.8

131.1

144.4

156.5

EPS - (IFRS) (p)

 

 

(12.9)

115.7

118.5

140.6

132.3

145.8

158.0

Dividend per share (p)

0.0

97.0

59.0

102.0

65.5

72.2

78.3

Gross Margin (%)

63.1

63.6

62.0

60.7

60.4

60.1

59.9

EBITDA Margin (%)

14.2

21.1

17.8

16.5

17.1

17.3

16.7

Operating Margin (before GW and except.) (%)

(0.8)

12.5

10.2

9.5

9.5

9.5

9.3

BALANCE SHEET

Fixed Assets

 

 

631.0

622.3

685.1

825.2

1,068.5

1,199.0

1,272.0

Intangible Assets

15.6

14.9

13.5

18.3

24.7

28.5

29.9

Tangible Assets

345.3

343.8

390.0

510.3

672.1

780.9

834.5

Right-of-Use Assets

270.1

263.6

281.6

296.6

371.7

389.6

407.6

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

98.7

266.1

283.0

297.9

187.7

181.8

241.8

Stocks

22.5

27.9

40.6

48.8

54.8

61.1

67.8

Debtors

39.4

37.6

50.2

53.8

59.9

66.3

73.3

Cash

36.8

198.6

191.6

195.3

73.0

54.3

100.6

Other

0.0

2.0

0.6

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(144.1)

(206.9)

(244.1)

(272.5)

(301.2)

(331.0)

(362.9)

Creditors

(91.1)

(153.4)

(191.7)

(216.0)

(242.1)

(269.2)

(298.4)

Leases

(48.6)

(49.3)

(48.8)

(52.5)

(55.2)

(57.8)

(60.5)

Short term borrowings

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(4.4)

(4.2)

(3.6)

(4.0)

(4.0)

(4.0)

(4.0)

Long Term Liabilities

 

 

(264.0)

(252.3)

(284.3)

(326.3)

(398.7)

(414.0)

(429.3)

Long term borrowings

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Leases

(243.1)

(233.9)

(252.5)

(267.1)

(339.5)

(354.8)

(370.1)

Other long term liabilities

(20.9)

(18.4)

(31.8)

(59.2)

(59.2)

(59.2)

(59.2)

Net Assets

 

 

321.6

429.2

439.7

524.3

556.3

635.8

721.6

CASH FLOW

Operating Cash Flow

 

 

61.6

312.1

272.3

333.0

363.5

404.4

433.2

Net Interest

(6.7)

(7.4)

(6.1)

(4.2)

(7.0)

(10.5)

(11.0)

Tax

(10.7)

(19.2)

(13.3)

(11.9)

(47.5)

(52.4)

(56.7)

Capex

(59.8)

(54.0)

(100.8)

(197.3)

(265.0)

(225.0)

(175.0)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Equity financing

3.7

4.6

3.1

3.6

3.6

3.6

3.6

Dividends

0.0

(15.3)

(98.5)

(60.8)

(107.6)

(73.8)

(80.0)

Borrowings and lease liabilities

(42.1)

(49.0)

(52.7)

(53.7)

(57.3)

(60.0)

(62.8)

Other

(0.5)

(10.0)

(11.0)

(5.0)

(5.0)

(5.0)

(5.0)

Net Cash Flow

(54.5)

161.8

(7.0)

3.7

(122.3)

(18.7)

46.3

Opening cash

 

 

91.3

36.8

198.6

191.6

195.3

73.0

54.3

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Closing cash

 

 

36.8

198.6

191.6

195.3

73.0

54.3

100.6

Closing net debt/(cash)

 

 

(36.8)

(198.6)

(191.6)

(195.3)

(73.0)

(54.3)

(100.6)

Closing net debt/(cash) including leases

 

 

254.9

84.6

109.7

124.3

321.6

358.3

329.9

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 2024 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 2024 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on Greggs

View All

Consumer

Greggs — Encouraging start to FY24

Consumer

Greggs — Showing us how it’s done

Consumer

Greggs — A strong finish to FY23

Latest from the Consumer sector

View All Consumer content

Consumer

Borussia Dortmund — London calling

Aqua Libra, London May 9th 2022Photographs Tim Bishop/Britvic PLC

Consumer

Britvic — Buoyant volumes in H124

Consumer

Topps Tiles — Looking to the future

Research: Investment Companies

Finsbury Growth & Income Trust — Train puts his money where his mouth is

Finsbury Growth & Income Trust (FGT) has been managed by Lindsell Train since the beginning of 2001. During his long tenure, approaching a quarter of a century, lead manager Nick Train has steadily acquired a significant 2.9% personal holding in the trust, which is a considerable amount of ‘skin in the game’. From the beginning of 2001 until the end of 2023, FGT’s 9.0% annual NAV total return was comfortably ahead of the UK market’s 5.1% annual total return. However, Train and deputy manager Madeline Wright, who was appointed in 2019, have underperformed for the last three years. The managers will continue with their successful long-term strategy of running a concentrated portfolio; Train’s philosophy is that wealth creation requires a concentrated approach, while diversification is necessary for wealth protection.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free