Last close As at 05/08/2026
GBP19.33
▲ −13.00 (−0.67%)
Market capitalisation
GBP1,977m
Research: Consumer
Greggs’ H123 results showed continued strong revenue growth, indicating good progress across the majority of its multi-year initiatives to drive revenue growth. Profitability continued to be hampered by input cost inflation as well as investment in the cost base to drive the expected revenue growth. A more favourable outlook for underlying cost inflation in FY23 than previously should be welcomed. We have slightly increased our estimates to reflect the strong growth in H123 and higher interest rates on cash deposits.
Greggs |
Improving outlook for costs in FY23 |
H123 results |
Retail |
3 August 2023 |
Share price performance
Business description
Next events
Analysts
Greggs is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
Greggs’ H123 results showed continued strong revenue growth, indicating good progress across the majority of its multi-year initiatives to drive revenue growth. Profitability continued to be hampered by input cost inflation as well as investment in the cost base to drive the expected revenue growth. A more favourable outlook for underlying cost inflation in FY23 than previously should be welcomed. We have slightly increased our estimates to reflect the strong growth in H123 and higher interest rates on cash deposits.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
1,229.7 |
145.6 |
114.3 |
97.0 |
21.9 |
3.9 |
12/22 |
1,512.8 |
148.3 |
117.5 |
59.0 |
21.3 |
2.4 |
12/23e |
1,778.4 |
164.9 |
116.3 |
66.1 |
21.5 |
2.6 |
12/24e |
1,970.1 |
186.0 |
133.8 |
66.9 |
18.7 |
2.7 |
12/25e |
2,196.6 |
207.7 |
149.4 |
74.7 |
16.7 |
3.0 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong revenue growth, investment dilutes margin
Total revenue growth of 21.5% to £844m in H123 included 16% like-for-like growth in company-managed stores and the addition of 50 net new stores, both company-managed and franchises. Greggs continued to benefit from volume growth and price growth in the period with the evening daypart, predominantly walk-in at the moment, providing incremental growth and the Greggs app driving increased loyalty (ie visits and transactions from registered users). The lower operating margin (7.7% vs H122’s 8.5%) primarily reflected the upfront investment in staff to serve the growing evening daypart sales and phasing of higher food and packaging inflation in H123. Lower free cash flow generation, due mainly to higher capital investment, as expected, led to a reduction in the net cash position, pre IFRS 16 liabilities, at the period end of around £139m (c £192m end-FY22).
Lower underlying cost inflation anticipated in FY23
Management’s profit expectations for the year are unchanged, including a lower level of underlying cost inflation of 9% (9–10% previously), predominantly due to lower food prices, meaning less pass-through to consumers than was originally anticipated by management. Our PBT estimates for FY23–25 have increased by 2% to reflect the strong revenue growth reported in H123 and higher interest income following the increase in interest rates on cash deposits.
Valuation: Deserved premium
On our revised estimates, Greggs’ P/E multiple for FY24 of 18.7x is at a deserved premium to the median multiple of the peers in the UK restaurants and pubs sector (15.7x) and the UK food retailer sector (11.8x), given its higher expected revenue growth rates and levels of profitability. Our DCF-based valuation with a revised higher weighted average cost of capital of 9% from 8.5% (increased risk-free rate) reduces to £29.70 per share from £30.50.
Strong revenue growth with margin dilution in H1
Income statement
Greggs reported strong revenue growth in H123 of 21.5% to £844m, which fed through to growth in gross profit of 19% to £514.3m, operating profit before exceptionals of c 11% to £65.4m, and underlying profit before tax of c 15% to £63.7m.
Exhibit 1: Summary income statement
£m |
H122 |
H222 |
FY22 |
H123 |
Revenue |
694.5 |
818.3 |
1,512.8 |
844.0 |
Growth y-o-y |
27.1% |
19.7% |
23.0% |
21.5% |
- Company-managed stores |
622.6 |
729.7 |
1,352.3 |
755.8 |
Growth y-o-y |
27.5% |
19.6% |
23.1% |
21.4% |
- Business-to-business (B2B) |
71.9 |
88.6 |
160.5 |
88.2 |
Growth y-o-y |
24.2% |
20.4% |
22.1% |
22.7% |
Gross profit |
433.8 |
504.5 |
938.3 |
514.3 |
Gross margin |
62.5% |
61.7% |
62.0% |
60.9% |
Distribution and selling costs |
(339.3) |
(373.9) |
(713.2) |
(408.0) |
As % of sales |
48.9% |
45.7% |
47.1% |
48.3% |
Admin Expenses |
(35.5) |
(35.2) |
(70.7) |
(40.9) |
As % of sales |
5.1% |
4.3% |
4.7% |
4.8% |
Operating profit |
59.0 |
95.4 |
154.4 |
65.4 |
Margin |
8.5% |
11.7% |
10.2% |
7.7% |
- Company-managed stores |
92.2 |
132.4 |
224.6 |
103.0 |
Margin |
14.8% |
18.1% |
16.6% |
13.6% |
- B2B |
12.6 |
18.7 |
31.3 |
16.7 |
Margin |
17.5% |
21.1% |
19.5% |
18.9% |
Exceptionals |
0.0 |
0.0 |
0.0 |
16.3 |
Net finance costs |
(3.2) |
(2.9) |
(6.1) |
(1.7) |
Underlying profit before tax |
55.8 |
92.5 |
148.3 |
63.7 |
Reported profit before tax |
55.8 |
92.5 |
148.3 |
80.0 |
Tax |
(9.9) |
(18.1) |
(28.0) |
(19.7) |
Tax rate |
17.7% |
19.6% |
18.9% |
24.6% |
Underlying profit after tax |
45.9 |
74.4 |
120.3 |
47.8 |
Reported profit after tax |
45.9 |
74.4 |
120.3 |
60.3 |
Underlying EPS fully diluted (p) |
44.8 |
72.7 |
117.5 |
46.8 |
DPS - ordinary (p) |
15.0 |
44.0 |
59.0 |
16.0 |
Source: Greggs accounts, Edison Investment Research
Greggs enjoyed strong growth from both its own company-managed stores as well as from its business-to-business channel (ie mainly franchise operations). The company-managed stores’ strong performance continued into Q2 with like-for-like growth of 15% versus Q123’s 17%, with some moderation due to it beginning to annualise the first, of three, price rises that were made from Q222 to counter the higher-than-expected input cost inflation. As indicated in other recent trading updates, the continued volume growth suggests there has been no negative response from customers to the price increases that have been made.
With respect to the multi-year growth initiatives, the evening daypart is contributing good growth (8.3% of company-managed sales in H123 vs 6.5% in H122) and the Greggs app is leading to more visits per user and transactions than originally anticipated. In prior periods, revenue from daytime delivery had been relatively disappointing versus initial expectations but its contribution to the group has stabilised and is now growing in line with the rest of the group.
50 net new store openings during H123 took the number of stores at the end of June 2023 to 2,378 and management reiterated its confidence in achieving the annual target of 150 net new stores.
The year-on-year decline in gross margin to 60.9% in H123 from 62.5% in H122 (ie c 150bp) was relatively consistent with the year-on-year declines seen in both H122 and H222, when Greggs began to pass on some of the input cost inflation to its customers.
Further down the income statement, Greggs was able to leverage its volume growth on both reported lines of operating costs, ie distribution and selling costs and administrative expenses.
The reduction in reported operating margin to 7.7% from 8.5% in H122 reflects the upfront investment in staff to grow the evening daypart, which will ultimately be recovered as revenue grows, and the phasing of higher food and packaging inflation in H123. The year-on-year decline in operating margin in H123 eased versus what Greggs experienced through FY22 (H122: -240bp y-o-y to 8.5%, H222: -210bp y-o-y to 11.7%) when Greggs was playing catch-up on the increasing cost inflation through the year. Management’s focus has been to recover overall cost inflation at the operating profit level rather than managing the individual cost lines where there are different rates of inflation. Greggs has effectively ‘underrecovered’ the above-average food cost inflation at the gross profit level but ‘over-recovered’ other cost inflation (eg wages and energy), which were lower than price inflation and where Greggs leverages the higher volume on that cost base.
With respect to the output for cost inflation, management has reduced its outlook for underlying cost inflation in FY23 to 9%, from 9–10% previously, mainly due to lower food cost inflation than initially anticipated, which is helped a little by the recent strength of sterling. The lower cost inflation includes a much lower level of expected inflation of 7% in H223 versus the 11% experienced in H123. In the period, Greggs has recognised £16.3m of exceptional income from an insurance settlement for business disruption due to the COVID-19 pandemic. The cash from the settlement was received in July 2023, therefore as it was sitting in debtors at the H123 balance sheet date, it contributed to a more significant working capital outflow than is typical, that is a total outflow of £31.7m in H123 versus £15.7m in H122.
Greggs’ net finance cost has been helped by the increase in interest rates on cash balances during the period and the build-up in cash balances ahead of the peak investment in upgrading its infrastructure in FY23–25 under the five-year growth plan.
The higher effective tax rate of 24.9% in H123 reflects the increase in the headline corporate tax rate to 25% from 19% and the discontinuance of enhanced capital allowances from the start of April 2023.
Management increased the interim dividend by c 7% y-o-y to 16p per share, marginally ahead of the c 4% growth in normalised earnings.
Cash flow and balance sheet
Operating cash flow increased year-on-year to £100.3m from £91.5m in H122. The 10% y-o-y growth was below Greggs’ reported revenue growth of c 21.5% due to the lower profitability and a more significant working capital outflow of £31.7m versus H122’s £15.7m as the debtor for the exceptional insurance proceeds was booked and subsequently received in July 2023.
On an absolute basis and relative to revenue, free cash flow after interest deteriorated in H123 (£17.6m) versus H122 (£57.6m), due to the low growth in operating cash flow and the expected increase in capex and intangibles from £36.1m in H122 to £83.2m in H123 to drive the planned revenue growth. Management reiterated the plan for total investment in tangibles and intangibles of c £200m in FY23.
The lower free cash post interest of £17.6m, dividend payments of £44.6m and repayment of lease liabilities of £26.7m led to a cash outflow, and therefore a decline in the closing cash balance to £138.6m from £191.6m at the end of FY22.
IFRS 16 lease liabilities increased marginally to £304.4m from £301.3m at the end of FY22, taking the net debt position including leases to £165.8m at the end of June 2023 from £108.4m at the end of FY22.
Outlook and forecasts
Management highlighted that the strong trading momentum has continued into H223 and, as discussed above, the rate of cost inflation has started to ease and will continue through the end of the year. As such, management’s profit expectations for the year are unchanged.
The comparative growth rates are higher from Q422 (18.2% l-f-l in company-managed stores), which was helped by an easy Omicron comparative (from Q421), strong underlying trading and the two price increases from earlier in the year (ie in May 2022 and October 2022). Q323’s comparative (9.7% in Q322) is a little easier than Q423’s as it was negatively affected by the Queen’s funeral to the tune of c 1% and by the heatwave.
We have increased our underlying PBT estimates for FY23–25 by 2% to take account of the strong revenue growth reported in H123 and higher interest income following the rise in interest rates on cash deposits.
Valuation: Justified premium to peers
In Exhibit 2, we show Greggs’ growth rates, profitability and multiples relative to a number of different peer groups, with all numbers annualised to Greggs’ December year-end.
Greggs continues to offer premium revenue growth in FY23 and FY24 relative to the majority of its peers in the UK restaurants and pubs, US restaurants and UK food retailer sectors, and our forecast operating margin compares favourably with the UK-listed companies but is below those of the US peers. We believe its premium rates of revenue growth and profitability versus the UK peers justify a premium to these companies.
Exhibit 2: Peer valuation
Share price (local ccy) |
Currency |
Market cap (local m) |
Sales growth CY23 (%) |
Sales growth CY24 (%) |
EBIT margin CY23 (%) |
EBIT margin CY24 (%) |
EV/sales CY23e (x) |
EV/sales CY24e (x) |
P/E CY23e (x) |
P/E CY24e (x) |
Div yield CY23e (%) |
Div |
|||||
Domino's Pizza Group |
406 |
GBp |
1,685 |
6 |
6 |
17.6 |
17.7 |
3.3 |
3.1 |
23.4 |
20.1 |
2.5 |
2.7 |
||||
Loungers |
206 |
GBp |
212 |
19 |
16 |
7.6 |
7.3 |
1.0 |
0.9 |
20.8 |
16.7 |
0.0 |
0.0 |
||||
Marston's |
49 |
GBp |
309 |
6 |
3 |
15.7 |
16.4 |
2.1 |
2.0 |
5.2 |
4.2 |
0.0 |
0.0 |
||||
Restaurant Group |
51 |
GBp |
385 |
5 |
5 |
5.8 |
6.7 |
1.0 |
0.9 |
24.7 |
13.7 |
0.0 |
0.0 |
||||
SSP Group |
260 |
GBp |
2,058 |
30 |
12 |
6.1 |
7.1 |
1.0 |
0.9 |
29.2 |
18.2 |
1.4 |
2.2 |
||||
J D Wetherspoon |
560 |
GBp |
716 |
8 |
5 |
5.9 |
6.5 |
1.0 |
1.0 |
19.4 |
14.7 |
0.0 |
0.0 |
||||
UK restaurants and pubs median |
7 |
5 |
6.8 |
7.2 |
1.0 |
1.0 |
22.1 |
15.7 |
0.0 |
0.0 |
|||||||
Domino's Pizza |
390.1 |
US$ |
13,999 |
(0) |
7 |
18.1 |
18.4 |
4.2 |
3.9 |
29.2 |
25.5 |
1.2 |
1.3 |
||||
McDonald's p |
264.2 |
US$ |
195,410 |
10 |
7 |
45.8 |
46.3 |
9.7 |
9.0 |
25.1 |
23.4 |
2.1 |
2.2 |
||||
Starbucks |
84.9 |
US$ |
97,383 |
11 |
11 |
16.0 |
16.6 |
3.5 |
3.1 |
28.0 |
23.7 |
2.1 |
2.3 |
||||
Wendys o |
21.2 |
US$ |
4,546 |
6 |
4 |
17.9 |
18.6 |
3.3 |
3.1 |
21.8 |
19.1 |
4.7 |
5.0 |
||||
Yum! Brands |
122.7 |
US$ |
35,001 |
7 |
7 |
32.7 |
33.4 |
6.8 |
6.3 |
26.5 |
23.1 |
1.7 |
1.9 |
||||
US restaurants median |
7 |
7 |
18.1 |
18.6 |
4.2 |
3.9 |
26.5 |
23.4 |
2.1 |
2.2 |
|||||||
J Sainsbury |
221 |
GBp |
5,133 |
3 |
2 |
3.0 |
3.0 |
0.4 |
0.4 |
12.9 |
12.7 |
4.7 |
4.6 |
||||
Tesco |
265 |
GBp |
19,697 |
5 |
2 |
3.9 |
4.0 |
0.4 |
0.4 |
11.8 |
10.9 |
4.3 |
4.6 |
||||
UK food retailer median |
4 |
2 |
3.5 |
3.5 |
0.4 |
0.4 |
12.4 |
11.8 |
4.5 |
4.6 |
|||||||
Greggs |
2,500 |
GBp |
2,556 |
18 |
11 |
9.4 |
9.6 |
1.3 |
1.2 |
21.5 |
18.7 |
2.6 |
2.7 |
||||
Greggs premium/(discount) to UK restaurants median |
27% |
25% |
(3)% |
19% |
N/A |
N/A |
|||||||||||
Greggs premium/(discount) to US restaurants median |
(68)% |
(69)% |
(19)% |
(20)% |
25% |
20% |
|||||||||||
Greggs premium/(discount) to UK food retailer median |
234% |
208% |
74% |
59% |
(41)% |
(42)% |
|||||||||||
Source: Refinitiv, Edison Investment Research. Note: Priced 2 August 2023.
Exhibit 3: Financial summary
£m |
2020 |
2021 |
2022 |
2023e |
2024e |
2025e |
||
Year-end December GBP millions |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
811.3 |
1,229.7 |
1,512.8 |
1,778.4 |
1,970.1 |
2,196.6 |
Cost of Sales |
(299.6) |
(447.7) |
(574.5) |
(696.7) |
(773.4) |
(868.5) |
||
Gross Profit |
511.7 |
782.0 |
938.3 |
1,081.7 |
1,196.7 |
1,328.1 |
||
EBITDA |
|
|
115.4 |
259.0 |
269.9 |
303.7 |
350.6 |
395.1 |
Operating profit (before amort. and excepts.) |
|
|
(6.2) |
153.2 |
154.4 |
167.6 |
190.0 |
212.2 |
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(0.8) |
0.0 |
0.0 |
16.3 |
0.0 |
0.0 |
||
Operating Profit |
(7.0) |
153.2 |
154.4 |
183.9 |
190.0 |
212.2 |
||
Net Interest |
(6.7) |
(7.6) |
(6.1) |
(2.7) |
(4.0) |
(4.5) |
||
Profit Before Tax (norm) |
|
|
(12.9) |
145.6 |
148.3 |
164.9 |
186.0 |
207.7 |
Profit Before Tax (FRS 3) |
|
|
(13.7) |
145.6 |
148.3 |
181.2 |
186.0 |
207.7 |
Tax |
0.7 |
(28.1) |
(28.0) |
(45.3) |
(48.4) |
(54.0) |
||
Profit After Tax (norm) |
(12.2) |
117.5 |
120.3 |
119.6 |
137.6 |
153.7 |
||
Profit After Tax (FRS 3) |
(13.0) |
117.5 |
120.3 |
135.9 |
137.6 |
153.7 |
||
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 |
116.3 |
133.8 |
149.4 |
EPS - (IFRS) (p) |
|
|
(12.9) |
115.7 |
118.5 |
133.2 |
134.9 |
150.7 |
Dividend per share (p) |
0.0 |
97.0 |
59.0 |
66.1 |
66.9 |
74.7 |
||
Gross Margin (%) |
63.1 |
63.6 |
62.0 |
60.8 |
60.7 |
60.5 |
||
EBITDA Margin (%) |
14.2 |
21.1 |
17.8 |
17.1 |
17.8 |
18.0 |
||
Operating Margin (before GW and except.) (%) |
(0.8) |
12.5 |
10.2 |
9.4 |
9.6 |
9.7 |
||
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 |
281.8 |
266.6 |
305.3 |
Stocks |
22.5 |
27.9 |
40.6 |
49.2 |
54.7 |
61.4 |
||
Debtors |
39.4 |
37.6 |
50.2 |
59.0 |
65.4 |
72.9 |
||
Cash |
36.8 |
198.6 |
191.6 |
172.9 |
146.0 |
170.4 |
||
Other |
0.0 |
2.0 |
0.6 |
0.6 |
0.6 |
0.6 |
||
Current Liabilities |
|
|
(144.1) |
(206.9) |
(244.1) |
(287.5) |
(315.6) |
(350.0) |
Creditors |
(91.1) |
(153.4) |
(191.7) |
(232.5) |
(258.1) |
(289.8) |
||
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 |
517.2 |
594.3 |
679.5 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
61.6 |
312.1 |
272.3 |
347.3 |
368.4 |
416.6 |
Net Interest |
(6.7) |
(7.4) |
(4.8) |
(2.1) |
(3.4) |
(3.9) |
||
Tax |
(10.7) |
(19.2) |
(13.3) |
(45.3) |
(48.4) |
(54.0) |
||
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) |
(67.4) |
(68.2) |
(76.2) |
||
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 |
(5.7) |
(20.0) |
(26.9) |
24.4 |
||
Opening cash |
|
|
91.3 |
36.8 |
198.6 |
192.9 |
172.9 |
146.0 |
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing cash |
|
|
36.8 |
198.6 |
192.9 |
172.9 |
146.0 |
170.4 |
Closing net debt/(cash) |
|
|
(36.8) |
(198.6) |
(191.6) |
(172.9) |
(146.0) |
(170.4) |
Closing net debt/(cash) including leases |
|
|
254.9 |
84.6 |
109.7 |
143.3 |
185.1 |
175.7 |
|
Source: Greggs accounts, Edison Investment Research |
||||||||
|
|
Research: Industrials
Norcros’s total revenue grew 2.1% in Q124 versus a strong comparator period despite tough UK market conditions and power outages in South Africa as the company’s strong service offering and multiple routes to market allowed it to unlock market share opportunities. We continue to believe Norcros’s key strengths are undervalued and that most, if not all, of the legacy issues, particularly the pension deficit, have been resolved. We retain our estimates and value Norcros at 246p, implying c 50% upside.