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Last close As at 07/06/2023
GBP26.92
▲ −44.00 (−1.61%)
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GBP2,749m
Research: Consumer
Gregg’s trading update indicates a strong rebound in trading since the re-opening of non-essential retail in April 2021, with positive like-for-like (LFL) sales growth versus FY19, which is earlier than we had expected. This is significant as it has been achieved despite not operating at full potential (ie reduced SKUs, shorter opening hours and other social distancing measures) and competition has been more limited, though both will normalise in coming months. With strong cost controls, including temporary benefits, the board believes that FY21 profits could be around 2019 levels in the absence of further restrictions. We upgrade our FY21 PBT forecasts by 64%, due to a less pessimistic LFL sales assumption.
Greggs |
Recovering better than expected |
Trading update |
Retail |
11 May 2021 |
Share price performance
Business description
Next events
Analysts
Greggs is a research client of Edison Investment Research Limited |
Greggs’ trading update indicates a strong rebound in trading since the re-opening of non-essential retail in April 2021, with positive like-for-like (LFL) sales growth versus FY19, which is earlier than we had expected. This is significant as it has been achieved despite not operating at full potential (ie reduced SKUs, shorter opening hours and other social distancing measures) and competition has been more limited, though both will normalise in coming months. With strong cost controls, including temporary benefits, the board believes that FY21 profits could be around 2019 levels in the absence of further restrictions. We upgrade our FY21 PBT forecasts by 64%, due to a less pessimistic LFL sales assumption.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/19 |
1,167.9 |
114.2 |
89.7 |
11.9 |
27.3 |
1.9 |
12/20 |
811.3 |
(12.9) |
(12.1) |
0.0 |
N/A |
N/A |
12/21e |
1,166.0 |
106.5 |
85.2 |
20.0 |
28.7 |
0.8 |
12/22e |
1,266.7 |
119.2 |
97.8 |
39.1 |
25.0 |
1.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Positive two-year LFL growth earlier than expected
In the eight weeks to 8 May, Greggs’ two-year LFL sales declined by 3.9%. Significantly, the decline includes positive growth since non-essential retail was allowed to re-open from 12 April, representing a major improvement from the 23.3% decline for the first 10 weeks of FY21. Sales benefitted from the post-lockdown pent-up demand that drove footfall to the high street, and much of Greggs’ competition not re-opening to trade, yet. As these normalise, Greggs expects two-year LFL growth is likely to revert to ‘negative’ for the remainder of FY21, albeit much less negatively than previously expected. FY21’s profitability is helped by temporary (£20m, including business rates relief and VAT changes) or semi-permanent (£10m, overhead reductions and logistics) cost savings, the former will restrain profit growth in FY22. Delivery at 8.2% of company managed sales in the recent eight weeks is a slight decline from 9.6% (first 10 weeks), as might be expected given greater consumer mobility, but importantly, management believes this is mostly incremental growth, implying greater medium-term earnings capacity than previously.
FY21: PBT upgraded by 64%
We upgrade our PBT forecast for FY21 by 64% to £106.5m, which includes a less negative two-year LFL decline assumption of 2% for the remainder of FY21 versus a 15% decline previously. The resulting clean PBT of £106.5m compares with FY19’s £114.2m. We have upgraded our FY22 PBT estimate by 15% to £119.2m.
Valuation: Share price near all-time high
The share price has performed well and is near its all-time high. The EV/sales multiple of 2.1x and P/E multiple of 28.7x are broadly in line with prior non-COVID-affected peak multiples of 2.1x and 27.6x reached in FY19.
Exhibit 1: Financial summary
£m |
2018 |
2019 |
2020 |
2021e |
2022e |
||
Year-end December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
1,029.3 |
1,167.9 |
811.3 |
1,166.0 |
1,266.7 |
Cost of Sales |
(373.5) |
(412.2) |
(299.6) |
(416.8) |
(447.7) |
||
Gross Profit |
655.9 |
755.7 |
511.7 |
749.2 |
819.0 |
||
EBITDA |
|
|
145.7 |
231.9 |
115.4 |
227.4 |
241.8 |
Operating Profit (before amort. and except.) |
|
|
89.8 |
120.7 |
(6.2) |
113.0 |
125.7 |
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(7.2) |
(5.9) |
(0.8) |
0.0 |
0.0 |
||
Operating Profit |
82.6 |
114.8 |
(7.0) |
113.0 |
125.7 |
||
Net Interest |
(0.0) |
(6.5) |
(6.7) |
(6.5) |
(6.5) |
||
Profit Before Tax (norm) |
|
|
89.8 |
114.2 |
(12.9) |
106.5 |
119.2 |
Profit Before Tax (FRS 3) |
|
|
82.6 |
108.3 |
(13.7) |
106.5 |
119.2 |
Tax |
(18.2) |
(22.4) |
0.7 |
(20.2) |
(20.3) |
||
Profit After Tax (norm) |
71.6 |
91.8 |
(12.2) |
86.3 |
99.0 |
||
Profit After Tax (FRS 3) |
65.7 |
87.0 |
(13.0) |
86.3 |
99.0 |
||
Average Number of Shares Outstanding (m) |
100.7 |
100.8 |
101.0 |
101.2 |
101.2 |
||
EPS - normalised fully diluted (p) |
|
|
70.3 |
89.7 |
(12.1) |
85.2 |
97.8 |
EPS - (IFRS) (p) |
|
|
65.3 |
86.3 |
(12.9) |
85.2 |
97.8 |
Dividend per share (p) |
35.7 |
11.9 |
0.0 |
20.0 |
39.1 |
||
Gross Margin (%) |
63.7 |
64.7 |
63.1 |
64.3 |
64.7 |
||
EBITDA Margin (%) |
14.2 |
19.9 |
14.2 |
19.5 |
19.1 |
||
Operating Margin (before GW and except.) (%) |
8.7 |
10.3 |
(0.8) |
9.7 |
9.9 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
347.5 |
646.5 |
631.0 |
641.6 |
670.4 |
Intangible Assets |
16.9 |
16.8 |
15.6 |
14.9 |
14.3 |
||
Tangible Assets |
330.5 |
353.7 |
345.3 |
356.6 |
386.0 |
||
Right-of-Use Assets |
0.0 |
272.7 |
270.1 |
270.1 |
270.1 |
||
Other |
0.2 |
3.3 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
140.6 |
142.3 |
98.7 |
204.9 |
253.7 |
Stocks |
20.8 |
23.9 |
22.5 |
24.5 |
26.3 |
||
Debtors |
31.6 |
27.1 |
39.4 |
31.9 |
34.7 |
||
Cash |
88.2 |
91.3 |
36.8 |
148.4 |
192.7 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(145.1) |
(208.7) |
(144.1) |
(190.0) |
(200.2) |
Creditors |
(136.4) |
(154.1) |
(91.1) |
(137.0) |
(147.2) |
||
Leases |
0.0 |
(48.8) |
(48.6) |
(48.6) |
(48.6) |
||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(8.7) |
(5.8) |
(4.4) |
(4.4) |
(4.4) |
||
Long Term Liabilities |
|
|
(13.8) |
(233.3) |
(264.0) |
(261.7) |
(261.7) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Leases |
0.0 |
(226.9) |
(243.1) |
(243.1) |
(243.1) |
||
Other long term liabilities |
(13.8) |
(6.4) |
(20.9) |
(18.6) |
(18.6) |
||
Net Assets |
|
|
329.2 |
346.8 |
321.6 |
394.7 |
462.2 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
152.2 |
246.0 |
61.6 |
279.6 |
251.4 |
Net Interest |
0.2 |
(6.3) |
(5.9) |
(6.3) |
(6.1) |
||
Tax |
(16.1) |
(20.3) |
(10.7) |
(20.2) |
(20.3) |
||
Capex |
(64.9) |
(87.7) |
(59.8) |
(73.0) |
(93.0) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Equity financing |
5.3 |
4.9 |
3.7 |
3.7 |
3.7 |
||
Dividends |
(33.1) |
(72.1) |
0.0 |
(20.3) |
(39.6) |
||
Borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(9.9) |
(61.4) |
(43.4) |
(51.9) |
(51.9) |
||
Net Cash Flow |
33.7 |
3.1 |
(54.5) |
111.6 |
44.3 |
||
Opening cash |
|
|
(54.5) |
(20.8) |
(17.7) |
(72.2) |
39.4 |
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing cash |
|
|
(20.8) |
(17.7) |
(72.2) |
39.4 |
83.6 |
Closing net debt/(cash) |
|
|
(88.2) |
(91.3) |
(36.8) |
(148.4) |
(192.7) |
Closing net debt/(cash) including leases |
|
|
(88.2) |
184.4 |
254.9 |
143.3 |
99.0 |
Source: Company accounts, Edison Investment Research
|
|
Research: Investment Companies
The Brunner Investment Trust (BUT) is managed by Matthew Tillett at Allianz Global Investors (AllianzGI), along with deputy managers Christian Schneider and Marcus Morris-Eyton. Tillett is confident that the trust’s shares can trade at a narrower discount to NAV following the exit of a major shareholder, which had acted as an overhang since 2016. He suggests that ‘now is a great opportunity to buy a solid reliable trust that has delivered good performance over the long term’. The manager says that BUT has a ‘philosophy and process that is tried and tested’ with the fund offering investors ‘high quality, large, liquid companies at attractive valuations’. He believes that the trust is well positioned to benefit in an environment where investors place a greater emphasis on the quality and strength of company fundamentals.
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