Last close As at 05/08/2026
GBP19.33
▲ −13.00 (−0.67%)
Market capitalisation
GBP1,977m
Research: Consumer
An unscheduled trading upgrade confirms impressive stronger than anticipated sales growth in October and November, on the back of a robust Q3 and tough prior year comparatives. Cautiously factoring in slightly weaker Christmas trading as shoppers increasingly favour buying online, we raise our FY18e PBT by 6.4%. Our valuation increases to 1,516p.
Written by
Greggs |
Raising earnings expectations |
Trading update |
Retail |
28 November 2018 |
Share price performance
Business description
Next event
Analysts
Greggs is a research client of Edison Investment Research Limited |
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An unscheduled trading upgrade confirms impressive stronger than anticipated sales growth in October and November, on the back of a robust Q3 and tough prior year comparatives. Cautiously factoring in slightly weaker Christmas trading as shoppers increasingly favour buying online, we raise our FY18e PBT by 6.4%. Our valuation increases to 1,516p.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
894.2 |
80.3 |
62.0 |
31.0 |
22.1 |
2.3 |
12/17 |
960.0 |
81.8 |
64.5 |
32.3 |
21.3 |
2.4 |
12/18e |
1,020.0 |
86.5 |
68.1 |
33.6 |
20.2 |
2.4 |
12/19e |
1,097.4 |
92.4 |
72.6 |
36.3 |
18.9 |
2.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Robust sales growth in October and November
Bucking the wider trend, Greggs has upgraded expectations for FY18 underlying pre-tax profit to be ‘at least £86m’ (Edison: £81.3m), following a stronger than anticipated eight weeks to 24 November. Over the period, leading on from a solid third quarter, total sales increased by 9.0% (Q318: 7.3%) and like-for-like sales in company-managed shops increased by 4.5% (Q318: 3.2%). Over the year to date, total and like-for-like sales have increased by 6.6% and 2.5%, respectively, against tough prior year comparatives, while operating costs have been well controlled.
Strategic plans continuing apace
The company is continuing to introducing innovative new product ranges and expand the brand into new dayparts, including breakfast. New store openings are targeting work- and leisure-related footfall as opposed to dwindling high-street trade, while the supply chain overhaul is creating solid foundations for growth.
Upgrading earnings forecasts
We upgrade our FY18e PBT by 6.4%. This cautiously assumes a slightly weaker Christmas trading performance compared with the prior year, due to the ongoing shift to online shopping affecting footfall. Our like-for-like sales growth assumptions are 3.3% in H218 and 2.4% across FY18. The company remains on track to open c 100 net new stores this year. In FY19e we raise our like-for-like sales assumption by 50bp to 2%, and our PBT forecast by 10.8%.
Valuation: Undemanding given earnings quality
Based on revised forecasts, our blended valuation increases to 1,516p, representing a 10% premium to the current share price. This implies a FY19e P/E multiple of 20.9x, which does not appear stretched given the quality of earnings and dividend yield prospects.
Exhibit 1: Financial summary
£m |
2016 |
2017 |
2018e |
2019e |
2020e |
||
Dec |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|
||||||
Revenue |
|
|
894.2 |
960.0 |
1,020.0 |
1,097.4 |
1,168.0 |
Cost of Sales |
(324.3) |
(348.1) |
(374.0) |
(399.9) |
(423.3) |
||
Gross Profit |
569.9 |
611.9 |
645.9 |
697.5 |
744.7 |
||
EBITDA |
|
|
125.9 |
135.7 |
141.9 |
154.6 |
167.0 |
Operating Profit (before amort. and except.) |
80.3 |
82.2 |
86.6 |
92.2 |
100.6 |
||
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 |
80.7 |
88.2 |
97.6 |
||
Net Interest |
(0.0) |
(0.4) |
(0.1) |
0.2 |
0.2 |
||
Profit Before Tax (norm) |
|
|
80.3 |
81.8 |
86.5 |
92.4 |
100.8 |
Profit Before Tax (FRS 3) |
|
|
75.1 |
71.9 |
80.5 |
88.4 |
97.8 |
Tax |
(18.1) |
(16.9) |
(17.9) |
(19.4) |
(20.4) |
||
Profit After Tax (norm) |
62.3 |
64.9 |
68.6 |
73.0 |
80.4 |
||
Profit After Tax (FRS 3) |
58.0 |
56.9 |
63.7 |
69.8 |
78.0 |
||
Average Number of Shares Outstanding (m) |
100.4 |
100.6 |
100.7 |
100.4 |
100.4 |
||
EPS - normalised (p) |
|
|
62.0 |
64.5 |
68.1 |
72.6 |
80.0 |
EPS - (IFRS) (p) |
|
|
57.7 |
56.5 |
63.3 |
69.5 |
77.7 |
Dividend per share (p) |
31.0 |
32.3 |
33.6 |
36.3 |
40.0 |
||
Gross Margin (%) |
63.7 |
63.7 |
63.3 |
63.6 |
63.8 |
||
EBITDA Margin (%) |
14.1 |
14.1 |
13.9 |
14.1 |
14.3 |
||
Operating Margin (before GW and except.) (%) |
9.0 |
8.6 |
8.5 |
8.4 |
8.6 |
||
|
|||||||
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 |
102.1 |
113.2 |
135.2 |
Stocks |
15.9 |
18.7 |
19.8 |
21.2 |
23.6 |
||
Debtors |
30.7 |
33.4 |
35.6 |
38.1 |
40.5 |
||
Cash |
46.0 |
54.5 |
46.8 |
53.9 |
71.1 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(121.4) |
(127.9) |
(136.5) |
(144.0) |
(140.6) |
Creditors |
(121.4) |
(127.9) |
(136.5) |
(144.0) |
(140.6) |
||
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 |
333.6 |
370.7 |
415.2 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
133.8 |
134.5 |
140.0 |
155.7 |
157.9 |
Net Interest |
0.1 |
0.2 |
(0.1) |
0.2 |
0.2 |
||
Tax |
(16.2) |
(17.6) |
(19.3) |
(18.6) |
(19.8) |
||
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) |
(34.2) |
(36.1) |
||
Net Cash Flow |
3.0 |
8.5 |
(7.7) |
7.2 |
17.2 |
||
Opening net debt/(cash) |
|
|
(42.9) |
(46.0) |
(54.5) |
(46.8) |
(53.9) |
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) |
(46.8) |
(53.9) |
(71.1) |
Source: Greggs, Edison Investment Research
|
|
Research: TMT
Ebiquity has now received full CMA clearance for the disposal of Ad Intel, which will be transformative for the balance sheet (a net inflow of £20m). As might be expected, the process has been disruptive and absorbed management time. The trading update indicates higher investment levels within the rest of the group, which will supress operating profits in FY18e. Some good new business wins lay the ground for better performance in FY19e, but we have withdrawn our forecasts for now until there is greater clarity. Confidence may take a while to rebuild, but the weakness in the share price may provide an opportunity in a group fundamentally well placed to benefit from changes in the global advertising market.