Last close As at 21/08/2026
GBP18.38
▲ 27.00 (1.49%)
Market capitalisation
GBP1,880m
Research: Consumer
Once again, there is a clear message in Greggs’ H126 results of outperformance in a challenging market, with menu innovation, its value proposition and growing distribution as key drivers in growing share. There was a general improvement in trading in company-managed stores through H126, albeit volumes are still declining. An easy comparative from H125, cost control, the phasing of cost inflation and good growth in grocery, helped to drive a strong increase in profit. Management’s outlook for cost inflation in FY26 has reduced, along with the expected rate of new store openings as they focus on fewer new stores with better returns while the environment remains challenging. The company has past peak investment and has reduced its required capital requirements for the year. This provides potential greater flexibility to consider shareholder returns beyond the ordinary dividend, which is constrained by earnings cover.
| Year end | Revenue (£m) | PBT (£m) | EPS (£) | DPS (£) | P/E (x) | Yield (%) |
|---|---|---|---|---|---|---|
| 12/24 | 2,014.4 | 189.8 | 1.37 | 0.69 | 14.6 | 3.4 |
| 12/25 | 2,151.2 | 171.9 | 1.23 | 0.69 | 16.3 | 3.4 |
| 12/26e | 2,305.8 | 172.9 | 1.24 | 0.69 | 16.1 | 3.4 |
| 12/27e | 2,468.2 | 179.5 | 1.29 | 0.69 | 15.5 | 3.4 |
Revenue increased by 7.2% in H126 with like-for-like growth in company-managed stores of 2.1% There is an obvious improvement in trading in company-managed stores through H126 with two-year growth rates of 3.3% for the first nine weeks, 5.5% in the first 19/20 weeks and 4.8% growth for H126. In the results meeting, management highlighted that trading in July is better than expected. The company had an easy comparative from H125 when operating profit declined by 7% due to high temperatures in June and poor weather in January that negatively affected trading. Management believes that in addition to more appropriate product ranges for the recent hot weather and appropriate staff levels for lower volumes, the business has proven to be more resilient. Underlying operating cost inflation in H126 was quantified at 2.2% in H126, better than expected, which helped to drive a c 22% increase in operating profit.
Management has reduced the expected space expansion plans for FY26 to 100–110 net new store openings as well as 10 new ‘Greggs Express’ trail convenience stores, versus the prior target of 120 new net openings. This is accompanied by a reduction in expected underlying cost inflation to 2% from 3% previously, due to more favourable food and packaging costs. Management believes there is potential for inflation to increase later in the year as a delayed response to the Middle East conflict. As a result, management’s expectations for FY26’s profit outcome are unchanged, ie for limited profit growth. We make no changes to our forecasts.
Prospective P/E multiples look attractive versus the long-term average multiple from FY13–25 of 17.8x.
A key focus of management’s presentation was to highlight how unusual the trading and operating performance was in H125, when operating profit fell in absolute and percentage terms. In addition, management highlighted how the dynamics of the company’s profitability remain in place with good growth in both H126 versus H125, with H126’s £86.5m operating profit being c 14% higher than H124’s £75.8m and c 23% higher than H125’s £70.4m.
The drivers to H126’s revenue growth include 2.1% l-f-l growth in company-managed stores, 1.3% l-f-l growth in franchise shops in addition to net new store openings and the rollout of products to Tesco and Iceland. Greggs added a net 34 new stores in H126, taking the period-end increase to just under 5% y-o-y in absolute terms.
Management’s presentation also highlighted that Greggs has relatively consistently outperformed the market on an underlying basis, even more so when the growth in space is taken into account.
From a cost perspective, management has reduced its guidance for underlying cost inflation to c 2% from 3% previously, mainly as a result of lower-than-expected food and packaging costs. H226 will bear incremental operating costs of £10m as the new facility in Derby will begin operations as well as the further delivery of structural cost savings of £4m on top of the £7m delivered in H126.
A combination of higher operating profit and lower capital led to a significant improvement in free cash flow on an absolute basis and relative to revenue.
Mainly as a result of fewer net new store openings in the year, management has reduced its guidance for capital spend in FY26 to £180m from £200m previously, while keeping guidance for FY27 and FY28 at c £160m, which are all well below FY25’s combined spend on fixed and intangible assets of c £285m.
The period-end net cash position, excluding IFRS 16 liabilities, was £15.9m versus a small net debt position of c £13m at the end of H125.
Management’s capital allocation targets a year-end cash position of c 3% of revenue to allow for seasonality in working capital before considering additional shareholder returns. Our current forecasts imply year-end cash positions for FY26 of 2.9% and 4.8% for FY27. Historically the company has retained surplus cash through special dividends as well as the ordinary dividend. However, management has indicated it may consider alternatives to special dividends such as share buybacks.
Growth in the ordinary dividend will require earnings upgrades as our projected earnings cover of a flat ordinary dividend of 69p/share in FY6 and FY27 is 1.8x and 1.9x, which are gradually approaching management's targeted cover of 2.0x.
Greggs’ prospective P/E multiples for FY26 and FY27 look low in the context of its own historic multiples.
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London │ New York │ Frankfurt
20 Red Lion Street
London, WC1R 4PS
United Kingdom
Research: Industrials
Bodycote reconfirmed full-year guidance alongside H126 results that met expectations. Core organic revenue rose 9.6%, led by a 24.6% surge in Aerospace & Defence (A&D), while the Optimise programme and a leaner cost base lifted group adjusted operating margins by 110bp to 16.0%. We believe reported margins understate underlying momentum, held back by transitory cost headwinds detailed below. With A&D visibility extending into 2027 and a potential expansion of the restructuring programme under review, we see a clear path to sustained margin expansion.