Greggs — Good Q324 on strong comparative

Greggs (LSE: GRG)

Last close As at 10/10/2024

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Research: Consumer

Greggs — Good Q324 on strong comparative

Greggs demonstrated continued strong sales growth in Q324, against a challenging Q323 comparative. The company continues to benefit from its multipronged growth strategy of increasing space, extended trading hours, new digital channels and menu development. Management is confident of meeting its full year expectations, helped by marginally lower cost inflation than previously expected.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

Greggs

Good Q324 on strong comparative

Q324 trading update

Retail

1 October 2024

Price

£31.24

Market cap

£3,194m

Net cash (£m) at 30 June 2024
(pre IFRS 16 liabilities £327m)

141.5

Shares in issue

102.3m

Free float

100%

Code

GRG

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.9)

12.7

27.6

Rel (local)

(0.5)

11.2

16.8

52-week high/low

£31.90

£22.82

Business description

With 2,559 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

Q424 trading update

January 2025

FY24 results

March 2025

Analysts

Russell Pointon

+44 (0)20 3077 5700

Milo Bussell

+44 (0)20 3077 5700

GreggsGreggs is a research client of Edison Investment Research Limited

Greggs demonstrated continued strong sales growth in Q324, against a challenging Q323 comparative. The company continues to benefit from its multipronged growth strategy of increasing space, extended trading hours, new digital channels and menu development. Management is confident of meeting its full year expectations, helped by marginally lower cost inflation than previously expected.

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

26.6

1.9

12/23

1,809.6

167.7

123.8

102.0

25.2

3.3

12/24e

2,013.6

183.9

128.3

71.0

24.3

2.3

12/25e

2,230.9

202.8

145.5

72.7

21.5

2.3

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

Good growth on tough comparative

Greggs’ Q324 total and like-for-like (in company-managed stores) sales growth of 10.6% and 5%, respectively, compounded the strong growth rates reported in the comparative Q323 period of c 21% and 14%, respectively. There has been a natural minor slowing in the growth rate since H124 as inflationary pressures have eased, leading to smaller and fewer price increases than required through FY22 and FY23. Management pointed to slightly slower rates of growth in July and August, due to the holiday period and some negative effect from the riots, and higher growth in September as these ended. The Q324 performance took the year-to-date revenue growth rates to 12.7% and 6.5%, respectively. Management indicated that both delivery and evening growth was ahead of the overall average. Greggs has added 86 net new shops year to date, broadly similar to the 82 added by the same stage last year. Management is confident of meeting the 140–160 net new openings for the year, likely to be in the middle of the range, suggesting another busy final quarter.

FY24 estimates unchanged

Our underlying FY24 estimates are unchanged as the trimming of management’s expected underlying cost inflation to be at the lower end of the previously indicated 4–5% range (mainly due to lower than expected pork prices) is countered by the indicated relative lower sales growth in July and August. Q424 has a revenue headwind versus Q324 from the price increases made in October 2022 that annualised in October 2023, and the fast roll-out of the delivery offer on the Uber Eats platform through October 2023. We have incorporated a c £14m exceptional gain for the completed sale of a manufacturing site in Twickenham, which management indicated may happen at the time of the H124 results.

Valuation: In line with recent average multiples

The prospective P/E multiples for FY24 and FY25 of 24.3x and 21.5x compare with more recent average multiples of c 21x and a premium to the post-FY15 (excluding COVID-affected FY20 and FY21) average of 19.0x. The share price is at a modest discount to our unchanged DCF-based valuation of £31.90 per share.

Exhibit 1: Financial summary

£m

2022

2023

2024e

2025e

2026e

Year-end December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,512.8

1,809.6

2,013.6

2,230.9

2,465.1

Cost of Sales

(574.5)

(710.5)

(790.1)

(881.3)

(979.7)

Gross Profit

938.3

1,099.1

1,223.5

1,349.6

1,485.4

EBITDA

 

 

269.9

299.2

347.5

388.1

414.9

Operating profit (before amort. and excepts.)

 

 

154.4

171.7

191.6

214.0

230.7

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

20.6

14.0

0.0

0.0

Operating Profit

154.4

192.3

205.6

214.0

230.7

Net Interest

(6.1)

(4.0)

(7.7)

(11.2)

(11.7)

Profit Before Tax (norm)

 

 

148.3

167.7

183.9

202.8

219.0

Profit Before Tax (FRS 3)

 

 

148.3

188.3

197.9

202.8

219.0

Tax

(28.0)

(41.0)

(51.4)

(52.7)

(56.9)

Profit After Tax (norm)

120.3

126.7

132.4

150.1

162.0

Profit After Tax (FRS 3)

120.3

142.5

146.4

150.1

162.0

Average Number of Shares Outstanding (m)

101.5

101.3

102.2

102.2

102.2

EPS - normalised fully diluted (p)

 

 

117.5

123.8

128.3

145.5

157.1

EPS - (IFRS) (p)

 

 

118.5

140.6

143.3

146.9

158.6

Dividend per share (p)

59.0

102.0

71.0

72.7

78.5

Gross Margin (%)

62.0

60.7

60.8

60.5

60.3

EBITDA Margin (%)

17.8

16.5

17.3

17.4

16.8

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

10.2

9.5

9.5

9.6

9.4

BALANCE SHEET

Fixed Assets

 

 

685.1

825.2

1,081.6

1,210.6

1,282.1

Intangible Assets

13.5

18.3

25.2

29.0

30.3

Tangible Assets

390.0

510.3

684.8

792.0

844.3

Right-of-Use Assets

281.6

296.6

371.7

389.6

407.6

Other

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

283.0

297.9

177.8

174.0

235.7

Stocks

40.6

48.8

54.3

60.5

67.3

Debtors

50.2

53.8

59.9

66.3

73.3

Cash

191.6

195.3

63.6

47.1

95.1

Other

0.6

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(244.1)

(272.5)

(298.8)

(328.6)

(360.5)

Creditors

(191.7)

(216.0)

(239.6)

(266.8)

(296.0)

Leases

(48.8)

(52.5)

(55.2)

(57.8)

(60.5)

Short term borrowings

0.0

0.0

0.0

0.0

0.0

Other

(3.6)

(4.0)

(4.0)

(4.0)

(4.0)

Long Term Liabilities

 

 

(284.3)

(326.3)

(398.7)

(414.0)

(429.3)

Long term borrowings

0.0

0.0

0.0

0.0

0.0

Leases

(252.5)

(267.1)

(339.5)

(354.8)

(370.1)

Other long term liabilities

(31.8)

(59.2)

(59.2)

(59.2)

(59.2)

Net Assets

 

 

439.7

524.3

561.9

642.0

728.1

CASH FLOW

Operating Cash Flow

 

 

272.3

333.0

378.6

407.5

435.4

Net Interest

(6.1)

(4.2)

(7.0)

(10.5)

(11.0)

Tax

(13.3)

(11.9)

(51.4)

(52.7)

(56.9)

Capex

(100.8)

(197.3)

(280.0)

(225.0)

(175.0)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

Equity financing

3.1

3.6

3.6

3.6

3.6

Dividends

(98.5)

(60.8)

(113.1)

(74.3)

(80.3)

Borrowings and lease liabilities

(52.7)

(53.7)

(57.3)

(60.0)

(62.8)

Other

(11.0)

(5.0)

(5.0)

(5.0)

(5.0)

Net Cash Flow

(7.0)

3.7

(131.7)

(16.5)

48.0

Opening cash

 

 

198.6

191.6

195.3

63.6

47.1

Other

0.0

0.0

0.0

0.0

0.0

Closing cash

 

 

191.6

195.3

63.6

47.1

95.1

Closing net debt/(cash)

 

 

(191.6)

(195.3)

(63.6)

(47.1)

(95.1)

Closing net debt/(cash) including leases

 

 

109.7

124.3

331.0

365.5

335.5

Source: Greggs, 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.

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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.

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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

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

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