Last close As at 05/08/2026
GBP19.33
▲ −13.00 (−0.67%)
Market capitalisation
GBP1,977m
Research: Consumer
After only seven weeks, Greggs’ vegan sausage roll has already led us to an upgrade, our third in two months. With its smart approach to social media, the company is succeeding in disrupting out-of-date perceptions, which appears to be bringing new customers into the stores. While multiples are optically high, we believe there may be further upgrade potential.
Written by
Greggs |
On a roll - unscheduled vegan-driven upgrade |
Trading update |
Retail |
19 February 2019 |
Share price performance
Business description
Next events
Analysts
Greggs is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||
After only seven weeks, Greggs’ vegan sausage roll has already led us to an upgrade, our third in two months. With its smart approach to social media, the company is succeeding in disrupting out-of-date perceptions, which appears to be bringing new customers into the stores. While multiples are optically high, we believe there may be further upgrade potential.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
894.2 |
80.3 |
62.0 |
31.0 |
25.8 |
1.9 |
12/17 |
960.0 |
81.8 |
64.5 |
32.3 |
24.8 |
2.0 |
12/18e |
1,029.3 |
89.2 |
70.2 |
34.7 |
22.8 |
2.2 |
12/19e |
1,120.8 |
102.8 |
80.8 |
40.5 |
19.8 |
2.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items but after share-based payments.
Vegan sausage roll powers outperformance
Trading in the first seven weeks was exceptionally strong, with like-for-like sales growth of 9.6% (FY18: 2.9%) and total sales up 14.1% (FY18: 6.2%). Demand was led by Greggs’ newly launched vegan sausage roll, but extended to the regular sausage roll, along with other savoury products. We infer that the launch publicity succeeded in its aims of bringing new customers into the stores. Greggs is working to verify this and will give more detail at full-year results in two weeks’ time. Early supply problems given the scale of demand for the vegan sausage roll have now been resolved, with more than 80% of stores now being supplied.
Smart social media disrupting entrenched image
The social media launch publicity included a YouTube video simulating an Apple launch as well as a trial ‘tasting’ by Piers Morgan, which attracted wide attention. Smart social media publicity like this has a serious underlying purpose of disrupting entrenched assumptions about Greggs’ brand, and bringing new customers into its stores, which have been transformed into food-on-the-go outlets over the past six years, with a food offer including healthy ranges as well as traditional products.
Forecasts: 8% upgrade
The exceptional growth to date also benefited from last year’s extreme weather, and has pulled back slightly in February. However, it should still leave the first half materially ahead of expectations, while FY18 l-f-l comps strengthen through the year: Q1: 1.2%; Q2: 1.8%; Q3: 3.2%; Q4: 5.2%. On our assumption of 6% H1 l-f-l growth, we upgrade our FY19 PBT and EPS forecast by 8%. We still assume H2 like-for-like growth of only 1%, leaving potential for further upside if this proves to be over-conservative.
Valuation: Discounts modest assumptions
Greggs’ shares trade close to our DCF valuation of 1,692p, which assumes revenue growth beyond FY20 of 6% fading to 2% and a perpetuity EBITDA margin of 15.7% (2020e:14.9%). As with forecasts, there is upgrade potential. Our peer comparison would suggest 1,523p. However, this includes some indebted companies, which is not the case for Greggs, where we now forecast FY18 net cash of £49m.
Exhibit 1: Financial summary
£m |
2016 |
2017 |
2018e |
2019e |
2020e |
||
Dec |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
894.2 |
960.0 |
1,029.3 |
1,120.8 |
1,192.9 |
Cost of Sales |
(324.3) |
(348.1) |
(375.2) |
(406.2) |
(429.9) |
||
Gross Profit |
569.9 |
611.9 |
654.1 |
714.6 |
762.9 |
||
EBITDA |
|
|
125.9 |
135.7 |
144.6 |
165.1 |
178.2 |
Operating Profit (before amort. and except.) |
80.3 |
82.2 |
89.3 |
102.6 |
111.8 |
||
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(5.2) |
(9.9) |
(6.0) |
(4.0) |
(3.0) |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
75.2 |
72.3 |
83.3 |
98.6 |
108.8 |
||
Net Interest |
(0.0) |
(0.4) |
(0.1) |
0.2 |
0.2 |
||
Profit Before Tax (norm) |
|
|
80.3 |
81.8 |
89.2 |
102.8 |
112.0 |
Profit Before Tax (FRS 3) |
|
|
75.1 |
71.9 |
83.2 |
98.8 |
109.0 |
Tax |
(18.1) |
(16.9) |
(18.4) |
(21.6) |
(22.7) |
||
Profit After Tax (norm) |
62.3 |
64.9 |
70.7 |
81.2 |
89.3 |
||
Profit After Tax (FRS 3) |
58.0 |
56.9 |
65.8 |
78.0 |
87.0 |
||
Average Number of Shares Outstanding (m) |
100.4 |
100.6 |
100.7 |
100.4 |
100.4 |
||
EPS - normalised (p) |
|
|
62.0 |
64.5 |
70.2 |
80.8 |
88.9 |
EPS - (IFRS) (p) |
|
|
57.7 |
56.5 |
65.3 |
77.7 |
86.6 |
Dividend per share (p) |
31.0 |
32.3 |
34.7 |
40.5 |
44.5 |
||
Gross Margin (%) |
63.7 |
63.7 |
63.5 |
63.8 |
64.0 |
||
EBITDA Margin (%) |
14.1 |
14.1 |
14.0 |
14.7 |
14.9 |
||
Operating Margin (before GW and except.) (%) |
9.0 |
8.6 |
8.7 |
9.2 |
9.4 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
323.4 |
334.7 |
376.0 |
408.5 |
427.1 |
Intangible Assets |
14.3 |
14.7 |
18.3 |
20.7 |
20.7 |
||
Tangible Assets |
307.4 |
319.2 |
354.2 |
384.3 |
402.8 |
||
Investments |
1.8 |
0.8 |
3.6 |
3.6 |
3.6 |
||
Current Assets |
|
|
92.6 |
106.6 |
104.9 |
124.9 |
155.7 |
Stocks |
15.9 |
18.7 |
19.9 |
21.5 |
24.0 |
||
Debtors |
30.7 |
33.4 |
36.2 |
38.9 |
41.4 |
||
Cash |
46.0 |
54.5 |
48.8 |
64.5 |
90.4 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(121.4) |
(127.9) |
(137.2) |
(146.0) |
(142.7) |
Creditors |
(121.4) |
(127.9) |
(137.2) |
(146.0) |
(142.7) |
||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(29.9) |
(14.0) |
(8.1) |
(7.0) |
(6.6) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(29.9) |
(14.0) |
(8.1) |
(7.0) |
(6.6) |
||
Net Assets |
|
|
264.7 |
299.4 |
335.6 |
380.5 |
433.6 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
133.8 |
134.5 |
142.7 |
167.8 |
170.0 |
Net Interest |
0.1 |
0.2 |
(0.1) |
0.2 |
0.2 |
||
Tax |
(16.2) |
(17.6) |
(19.9) |
(20.8) |
(22.1) |
||
Capex |
(80.1) |
(72.6) |
(90.0) |
(95.0) |
(85.0) |
||
Acquisitions/disposals |
4.7 |
2.2 |
(4.1) |
(1.0) |
0.0 |
||
Financing |
(8.3) |
(6.0) |
(1.2) |
0.0 |
(0.0) |
||
Dividends |
(30.9) |
(32.2) |
(33.1) |
(35.6) |
(37.3) |
||
Net Cash Flow |
3.0 |
8.5 |
(5.7) |
15.7 |
25.9 |
||
Opening net debt/(cash) |
|
|
(42.9) |
(46.0) |
(54.5) |
(48.8) |
(64.5) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(46.0) |
(54.5) |
(48.8) |
(64.5) |
(90.4) |
Source: Greggs accounts, Edison Investment Research
|
|
JPJ has announced a definitive agreement to sell its Mandalay subsidiary to 888 Holdings for £18m cash. During FY18, Mandalay reported revenues of c £11m and PBT of c £3.7m, which represents a deal value of c 5.0x EV/EBITDA. This subsidiary has significantly underperformed the rest of JPJ’s business and was particularly affected by the additional bonus tax in 2017. We therefore believe this asset sale is a net positive and should enable the company to better focus on its market-leading brands. The stock continues to trade at the low end of the peer group, at only 8.7x EV/EBITDA, 7.2x P/E and 11.9% free cash flow yield for FY19e.