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Research: Consumer
Greggs’ (GRG) AGM trading update (first 19 weeks of FY22) indicates it continues to trade well in what has undoubtedly become a more challenging environment due to deteriorating consumer confidence. Management’s profit expectations for FY22 of no material profit progression are unchanged as it believes further selective price increases will be required to offset higher cost inflation than originally anticipated, which is likely to be the same for its competitors. The prospective P/E multiples have edged back towards the long-term average of 17.9x, which looks attractive given the forecast growth profile.
Greggs |
Profit outlook maintained for FY22 |
AGM trading update |
Retail |
17 May 2022 |
Share price performance
Business description
Next events
Analysts
Greggs is a research client of Edison Investment Research Limited |
Greggs’ (GRG) AGM trading update (first 19 weeks of FY22) indicates it continues to trade well in what has undoubtedly become a more challenging environment due to deteriorating consumer confidence. Management’s profit expectations for FY22 of no material profit progression are unchanged as it believes further selective price increases will be required to offset higher cost inflation than originally anticipated, which is likely to be the same for its competitors. The prospective P/E multiples have edged back towards the long-term average of 17.9x, which looks attractive given the forecast growth profile.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
811.3 |
(12.9) |
(12.1) |
0.0 |
N/A |
N/A |
12/21 |
1,229.7 |
145.6 |
114.3 |
97.0 |
18.9 |
4.5 |
12/22e |
1,429.0 |
146.9 |
118.0 |
59.0 |
18.3 |
2.7 |
12/23e |
1,630.0 |
165.3 |
122.3 |
61.1 |
17.7 |
2.8 |
12/24e |
1,901.9 |
188.3 |
135.6 |
67.8 |
15.9 |
3.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong trading against COVID-disrupted comparative
In the 19 weeks to 14 May 2022, GRG’s sales increased by c 31% to £495m, including like-for-like sales growth in company-managed stores of 27.4%, and 15.8% in the most recent 10 weeks. Trading is ‘flattered’ by the easy comparatives provided by COVID-19 restrictions last year; broadly, the comparatives get tougher as the year progresses. Walk-in transaction numbers remain below FY19’s pre-COVID-19 levels, but year-to-date total revenue is 11% higher due to price inflation and the addition of delivery etc. Management has noted no significant changes in consumer behaviour so far beyond some minor switching from delivery to walk-in. With 43 net new store openings so far in 2022 and with a strong pipeline, management is happy with the progress towards its target of opening 150 net new stores per annum (typically H2 weighted) from 2022–26.
FY22 profit expectations unchanged
Management’s expectations for FY22 profit are unchanged therefore we retain our prior estimates. It expects cost inflation for FY22 to be higher than the estimated 6–7% guided for at the start of the year, primarily due to food inputs, in particular dairy. Further selective price increases will be required, some beginning imminently, to offset the higher cost inflation. Management remains confident of its price/quality advantage versus its competitors and having seen limited negative customer reaction to prior price increases at the end of 2021.
Valuation: P/E multiples back to long-term average
The recent share price weakness has seen prospective P/E multiples for FY22–24 of 18.3x, 17.7x and 15.9x edge back towards the long-run average (FY13–21) of 17.9x, which is attractive in the context of management’s aspiration to double revenue from FY21’s levels by FY26, a faster rate of growth than historically delivered. Our DCF-based valuation of £31.60 per share is unchanged.
Exhibit 1: Financial summary
£m |
2020 |
2021 |
2022e |
2023e |
2024e |
||
Year-end December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
811.3 |
1,229.7 |
1,429.0 |
1,630.0 |
1,901.9 |
Cost of Sales |
(299.6) |
(447.7) |
(527.4) |
(607.8) |
(716.6) |
||
Gross Profit |
511.7 |
782.0 |
901.6 |
1,022.2 |
1,185.3 |
||
EBITDA |
|
|
115.4 |
259.0 |
266.9 |
307.5 |
355.3 |
Operating Profit (before amort. and excepts.) |
|
(6.2) |
153.2 |
154.2 |
172.9 |
196.3 |
|
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(0.8) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
(7.0) |
153.2 |
154.2 |
172.9 |
196.3 |
||
Net Interest |
(6.7) |
(7.6) |
(7.3) |
(7.6) |
(8.0) |
||
Profit Before Tax (norm) |
|
|
(12.9) |
145.6 |
146.9 |
165.3 |
188.3 |
Profit Before Tax (FRS 3) |
|
|
(13.7) |
145.6 |
146.9 |
165.3 |
188.3 |
Tax |
0.7 |
(28.1) |
(25.7) |
(39.7) |
(49.0) |
||
Profit After Tax (norm) |
(12.2) |
117.5 |
121.2 |
125.6 |
139.4 |
||
Profit After Tax (FRS 3) |
(13.0) |
117.5 |
121.2 |
125.6 |
139.4 |
||
Average Number of Shares Outstanding (m) |
101.0 |
101.5 |
101.5 |
101.5 |
101.5 |
||
EPS - normalised fully diluted (p) |
|
|
(12.1) |
114.3 |
118.0 |
122.3 |
135.6 |
EPS - (IFRS) (p) |
|
|
(12.9) |
115.7 |
119.5 |
123.8 |
137.3 |
Dividend per share (p) |
0.0 |
97.0 |
59.0 |
61.1 |
67.8 |
||
Gross Margin (%) |
63.1 |
63.6 |
63.1 |
62.7 |
62.3 |
||
EBITDA Margin (%) |
14.2 |
21.1 |
18.7 |
18.9 |
18.7 |
||
Operating Margin (before GW and except.) (%) |
(0.8) |
12.5 |
10.8 |
10.6 |
10.3 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
631.0 |
622.3 |
740.2 |
879.4 |
1,005.8 |
Intangible Assets |
15.6 |
14.9 |
26.9 |
35.4 |
41.9 |
||
Tangible Assets |
345.3 |
343.8 |
435.1 |
551.1 |
656.5 |
||
Right-of-Use Assets |
270.1 |
263.6 |
278.2 |
292.8 |
307.4 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
98.7 |
264.1 |
213.5 |
189.2 |
194.2 |
Stocks |
22.5 |
27.9 |
32.9 |
37.9 |
44.7 |
||
Debtors |
39.4 |
37.6 |
43.7 |
49.8 |
58.2 |
||
Cash |
36.8 |
198.6 |
137.0 |
101.4 |
91.4 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(144.1) |
(206.9) |
(234.2) |
(261.8) |
(299.0) |
Creditors |
(91.1) |
(153.4) |
(180.7) |
(208.3) |
(245.5) |
||
Leases |
(48.6) |
(49.3) |
(49.3) |
(49.3) |
(49.3) |
||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(4.4) |
(4.2) |
(4.2) |
(4.2) |
(4.2) |
||
Long Term Liabilities |
|
|
(264.0) |
(252.3) |
(266.9) |
(281.5) |
(296.1) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Leases |
(243.1) |
(233.9) |
(248.5) |
(263.1) |
(277.7) |
||
Other long term liabilities |
(20.9) |
(18.4) |
(18.4) |
(18.4) |
(18.4) |
||
Net Assets |
|
|
321.6 |
427.2 |
452.7 |
525.3 |
604.9 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
61.6 |
312.1 |
287.2 |
327.9 |
381.5 |
Net Interest |
(6.7) |
(7.4) |
(6.9) |
(7.2) |
(7.6) |
||
Tax |
(10.7) |
(19.2) |
(25.7) |
(39.7) |
(49.0) |
||
Capex |
(59.8) |
(54.0) |
(169.0) |
(205.0) |
(214.0) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Equity financing |
3.7 |
4.6 |
4.6 |
4.6 |
4.6 |
||
Dividends |
0.0 |
(15.3) |
(100.4) |
(62.0) |
(68.8) |
||
Borrowings and lease liabilities |
(42.1) |
(49.0) |
(51.4) |
(54.1) |
(56.8) |
||
Other |
(0.5) |
(10.0) |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
(54.5) |
161.8 |
(61.6) |
(35.6) |
(10.0) |
||
Opening net debt/(cash) |
|
|
91.3 |
36.8 |
198.6 |
137.0 |
101.4 |
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
36.8 |
198.6 |
137.0 |
101.4 |
91.4 |
Closing net debt/(cash) excluding leases |
|
(36.8) |
(198.6) |
(137.0) |
(101.4) |
(91.4) |
|
Closing net debt/(cash) including leases |
|
254.9 |
84.6 |
160.8 |
211.0 |
235.6 |
Source: Greggs, Edison Investment Research
|
|
Research: Metals & Mining
Despite slightly lower production and higher costs in Q122, Newmont’s financial performance was within 6% of our prior expectations and exceeded them once adjusted for a one-off, exceptional pension settlement charge. As a result, despite a 6.5% lower prevailing gold price than at the time of our last note published on 21 April, we have only modestly reduced our adjusted net EPS forecast for the year by just 6.4%.
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