Greggs — Showing us how it’s done

Greggs (LSE: GRG)

Last close As at 12/07/2024

GBP29.02

2.00 (0.07%)

Market capitalisation

GBP2,968m

More on this equity

Research: Consumer

Greggs — Showing us how it’s done

The second full year of Greggs’ five-year growth plan to double revenue by FY26 should be marked down as very successful, especially so given the challenging external environment. Unlike many consumer-facing companies, high selling price inflation was accompanied by volume growth, leading to good market share gains. The consumer is responding well to new initiatives to grow revenue in new dayparts and digital channels. Profitability was well-managed with better recovery of input cost inflation than FY22. We look for more of the same in FY24, which will be a significant year from a capital investment perspective, and beyond.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

Greggs

Showing us how it’s done

FY23 results and outlook

Retail

2 April 2024

Price

£28.74

Market cap

£2,939m

Net cash (£m) at 31 December 2023 (excluding IFRS 16 liabilities)

195.3

Shares in issue

102.3m

Free float

100%

Code

GRG

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.6

10.5

4.4

Rel (local)

1.2

7.8

7.5

52-week high/low

£29.04

£22.82

Business description

With 2,473 shops and 12 manufacturing and distribution centres, Greggs is the leading UK ‘food-on-the-go’ retailer. It uses vertical integration to offer differentiated products at competitive prices. Its ambition is to grow revenue to £2.4bn by FY26.

Next events

AGM trading update

14 May 2024

H124 results

30 July 2024

Q324 trading update

1 October 2024

Analysts

Russell Pointon

+44 (0)20 3077 5700

Milo Bussell

+44 (0)20 3077 5700

GreggsGreggs is a research client of Edison Investment Research Limited

The second full year of Greggs’ five-year growth plan to double revenue by FY26 should be marked down as very successful, especially so given the challenging external environment. Unlike many consumer-facing companies, high selling price inflation was accompanied by volume growth, leading to good market share gains. The consumer is responding well to new initiatives to grow revenue in new dayparts and digital channels. Profitability was well-managed with better recovery of input cost inflation than FY22. We look for more of the same in FY24, which will be a significant year from a capital investment perspective, and beyond.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/22

1,512.8

148.3

117.5

59.0

24.5

2.1

12/23

1,809.6

167.7

123.8

102.0

23.2

3.5

12/24e

2,013.6

182.8

131.1

65.5

21.9

2.3

12/25e

2,230.9

201.4

144.4

72.2

19.9

2.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY23: Better profit performance

Greggs’ FY23 results exceeded our expectations from the start of the year, and, as expected, it enjoyed more leverage at the profit line to the strong revenue growth than in the prior year as it was better able to recover high input cost inflation. Reported revenue growth of c 20% and profit before tax (PBT) growth of 13%, were ahead of our estimates from the start of the year by 6% and 4%, respectively. The better-than-expected gross cash position enabled management to spring a surprise by announcing a special dividend of 40p/share, despite the high level of investment in supply chain and store growth in FY24 and FY25.

Double-digit CAGRs for revenue and operating profit

We forecast Greggs will continue to generate strong growth over the next three years, with CAGRs for revenue and operating profit for FY24–26 of 11% and 10%, respectively. More than half of the forecast revenue growth is from new store openings, which should have a high level of visibility. Our operating profit estimates for FY24 and FY25 are relatively unchanged, a combination of increased revenue estimates offset by some trimming of our gross margin estimate due to dilution from more sales via delivery and the app. Our estimates for PBT are nudged down to reflect a lower cash balance following the unexpected special dividend in FY23, and the bringing forward of capital investment.

Valuation: Increased DCF valuation

The updated DCF-based valuation, which incorporates the roll forward and updating of our estimates and WACC (reduced from 10% to 9% to incorporate lower bond yields and equity risk premium), has increased to £30.20 (£29.70 previously). Prospective EV/sales and P/E multiples for FY24 of 1.4x and 21.9x, respectively, are at the mid/upper end of its more recent average multiples.

Investment summary

Company description: Accelerating growth strategy

The Next Generation Greggs programme, initially launched in January 2020 and then accelerated in October 2021, is expected to accelerate Greggs’ long-held strategic objective of becoming the customer favourite for food-on-the-go (FOTG). The programme has four drivers of growth, supported by higher investment in the supply chain and systems: (1) accelerate the rate of estate growth and improve the estate’s quality; (2) new digital channels (delivery and click and collect (C&C)) to enable Greggs to extend reach and customer choice; (3) grow sales in the evening with the help of menu enhancements and leveraging all distribution channels; and (4) broadening customer appeal and driving loyalty, with higher customer engagement and the Greggs Rewards loyalty scheme.

Financials: Double-digit profit growth expected

The goal of the five-year programme was set at an ‘ambitious’ doubling of sales to £2.4bn from FY22–26. By the end of FY23, the second full year of its five-year growth plan, Greggs had added roughly half of the incremental revenue that was expected by FY26, therefore it is clear the company is making good progress towards the FY26 target, albeit helped by elevated selling price inflation. Our new FY26 forecasts show that we expect Greggs to exceed the FY26 target, with 10–11% annual growth in each of the next three years. We forecast slightly lower growth in operating profit, a CAGR of c 10% as lower-margin delivery sales and customer use of the app both grow in importance. Greggs enters its peak years of capital investment with a strong balance sheet, net cash excluding leases of c £195m and net debt including leases of c £124m. We forecast a reduction in the gross cash balance in FY24 and FY25 before it rebuilds in FY26.

Valuation: DCF-based valuation of £30.20 per share

Over the long term Greggs has enjoyed a re-rating as its focus on taking market share in the FOTG market helped to deliver greater revenue growth and levels of profitability. The prospective EV/sales multiples of 1.4x for FY24 down to 1.1x in FY26 are at the middle and low end of its more recent historical average multiples, a range of 1.1–1.6x since FY15, when the benefits of the FOTG strategy began to show through in higher levels of profitability that are more consistent with current and expected levels of profitability. The prospective P/E multiples for FY24 of 21.9x and 18.4x in FY26 are towards the middle/upper end of recent average multiples, which have ranged between 16.5x and 23.0x since FY15, excluding the distortions from the COVID-19 pandemic. These valuation multiples are supportive of our updated DCF-based valuation of £30.20.

Sensitivities: Consumer economy, execution risk and inflation

We see the main sensitivities as:

Challenges with the consumer economy, including pressures on disposable incomes, as well as high levels of competition from many sources.

Execution risk from a more rapid store expansion programme than historically, developing new revenue streams in new dayparts and channels of distribution, and supply chain changes.

Input cost inflation including staff, food, utilities, currency and regulatory cost pressures.

Following the UK’s exit from the EU, there remains potential for changes to regulations and supply chain disruption, including delays to the import of goods.


Company description: On the go

Greggs was founded as a Tyneside bakery in 1939 and grew to become a national chain with c 1,670 stores by the end of 2012. From 2013, management’s strategic vision has been to become the customer favourite for FOTG, with a value-based offer.

The four pillars of the long-term strategic vision have been consistent since then:

Great-tasting, freshly prepared food: Greggs seeks to differentiate itself by highlighting its consistent high-quality and freshly prepared food made from responsibly-sourced ingredients, which is competitively priced.

Best customer experience: the key elements are service and convenience. Convenience is strongly defined by location as well as format, areas of strong focus. Service needs to be simple and straightforward, and the company focuses on its in-store processes.

Competitive supply chain: Greggs owns its own supply chain and, hand-in-hand with developing the estate, Greggs has rationalised the regional bakery estate to centres for national production of its major product lines.

First-class support teams: the support team is largely governed by systems, where the company has finalised implementing SAP through the organisation.

Prior to the COVID-19 pandemic, from FY13–19 management’s strategy generated strong financial growth with CAGRs for number of stores of 3%, revenue of 7%, gross profit of 9% and operating profit of 19%. Greggs’ revenue has rebounded strongly from the outbreak of the pandemic, surpassing FY19’s revenues in FY21 (lower transactions with compound price inflation) and the benefits from the five-year growth plan (see below) are evident in the financial performance through FY23.

Exhibit 1: Revenue and profitability

Source: Greggs, Edison Investment Research

The long-term strategic vision remains the same, but in January 2020 management launched the Next Generation Greggs programme, with the aim of increasing customer loyalty and choice, and widening distribution of Greggs’ products across multiple channels and more dayparts. Following the initial disruption caused by COVID-19 in Q120, management decided to accelerate the programme as the pandemic had accelerated the expected change in customer behaviour. At the October 2021 capital markets day (CMD), management quantified how it expects Next Generation would drive growth, setting an ‘ambitious’ five-year (to FY26) target to double revenue to c £2.4bn, with four key growth drivers:

Growing and developing the estate – at the time management’s ambition was to grow the estate to at least 3,000 locations (from 2,181 at end-FY21), while improving the size and quality of the locations as well as the service offered. Management’s increased confidence in the strategy means it now refers to a ‘clear opportunity for significantly more than 3,000 UK shops in time’. As recently as the FY20 results, management was indicating the potential for a store portfolio of c 2,500 by FY24, therefore the plan represents a significant acceleration in store growth.

Digital channels – new digital channels, delivery and C&C will help Greggs compete more effectively at all times of the day. Delivery helps Greggs to extend its reach beyond walk-in customers, and C&C offers customers greater choice, availability and convenience.

Evening trade – extending trading hours beyond the traditional opening hours with further menu enhancements, and leveraging all distribution channels, will enable Greggs to compete in the new evening daypart.

Broadening customer appeal and driving loyalty – the brand has been successfully repositioned in recent years. With timely and effective customer communication via the new Greggs App, website and customer relationship (CRM), management believes Greggs can appeal to more customers on more occasions when they need food-on-the-go.

All of the above will be enabled by higher investment in the supply chain and systems to support the expected growth and new services, and are underpinned by the Greggs Pledge (ongoing improvement in its ESG credentials and continuing to act responsibly).

Leaving aside the post COVID-19 recovery to prior trading levels, we consider in the sections below the key drivers to revenue growth.

While management provided a revenue target for FY26, there was no guidance for expected profitability. It hoped to maintain existing levels of profitability from natural cost leverage leading to underlying margin expansion (subject to the unpredictable nature of input cost inflation), which has to support an indicated 0.5–1.0 margin point pa for incremental investment in sustainability. Before the pandemic, Greggs enjoyed a gradual increase in operating margin from 5.4% in FY13 to 10.3% in FY19, but was more typically 8–10% before the FY19 peak.

Beyond its UK aspirations, management has highlighted the potential to seek growth internationally or by acquiring another brand, potentially after 2024, the peak year of its capital investment plan.

In the video below, chief financial officer Richard Hutton gives an update on the progress made in FY23.

Exhibit 2: Interview with CFO Richard Hutton

Source: Edison Investment Research

A bigger and better estate

At the 2021 CMD, management estimated estate growth (ie space growth and like-for-like growth from company-managed and franchise stores) would contribute half of the expected incremental revenue growth through FY26.

Prior to this, Greggs typically opened 90–100 net new stores pa, but the 2021 plan accelerated this to 150 net new stores pa. The regular growth profile of the new store additions suggests the anticipated incremental revenue should be relatively linear, subject to relative store sizes, the maturity profile of new stores and the intra-year phasing.

The opportunity to scale more quickly is due to a number of contributing factors:

greater opportunities (ie more vacancies and lower costs) in the property market as a result of the COVID-19 pandemic, which is helping to open up underpenetrated geographies, for example London, and locations, for example railway stations;

other recent initiatives such as C&C and delivery have improved and will continue to help improve the store-level economics (ie higher sales densities without a commensurate increase in costs); and

the strength and financial security of the Greggs brand and more versatile store formats enable it to now access more different types of location than previously.

Within the 2021 target of 150 net new stores pa, 100 were expected to be company-managed stores and 50 would be franchises, and there would be 50 relocations a year of company-managed stores. For FY24 management targets 50 relocations and 195 refurbishments.

The company is making good progress on the plan, adding 147 and 145 net new stores in the first two full years of the plan (ie FY22 and FY23), and management has indicated 140–160 net new stores will be added in FY24. There is typically a skewing to net new store openings in the second half of each financial year, so the contribution to the year’s results will be relatively limited.

Greggs does not disclose details of area traded in its stores, but we believe the average store size is likely to increase through the plan, which will, in part, be required to support the growth from newer channels (see below), as well as the provision of seating in more stores. These are reflected in greater reported growth from new space than the average number of stores.

Exhibit 3: Growth drivers for company-managed revenue

£m

FY17

FY18

FY19

*FY20

FY21

FY22

FY23

Revenue from company-managed stores

891.8

949.3

1,073.8

715.3

1,098.2

1,352.3

1,610.9

Growth y-o-y (%)

N/A

6%

13%

(33)%

54%

23%

19%

Like-for-like (%)

4%

3%

9%

(36)%

26%

18%

14%

Implied growth from new space (%)

N/A

4%

4%

3%

27%

5%

5%

Average number of stores growth y-o-y (%)

2%

3%

3%

2%

2%

4%

4%

Source: Greggs, Edison Investment Research. Note: *53 weeks.

The higher rate of store expansion leads to the obvious question of whether management is over-extending, as happened in the wider restaurant space pre-pandemic. Here, management points to the belief that shop density is currently lower than it could be, the greatest opportunities are outside traditional towns and suburban locations where it is well-represented already, and even in the ‘top postcode’ Greggs continues to open new shops. With respect to shop density, management’s assumption of one store to 20,000 people to reach the target of at least 3,000 stores compares with the current density of one to 30,000 people, and versus the current top postcode of one to 15,000.

More multi-channel and dayparts

The aspiration to grow sales from more channels (ie delivery and C&C to complement traditional walk-in) and sales in more dayparts (ie the under-penetrated evening in addition to traditional day time) should drive sales densities for the stores and improve store-level contribution given relatively limited marginal operating costs.

In aggregate, at the 2021 CMD management targeted incremental sales from FY22–26 of £280m (c 23% of the total growth target) from a combination of growing evening and delivery.

More channels of distribution

Following successful trials that began before the pandemic with Deliveroo, Uber Eats and Just Eat, management decided to roll-out the delivery service via an exclusive partnership with Just Eat. In July 2020 the plan was extended with a view to providing nationwide coverage of major cities from 600 stores by the end of FY20. Following a further successful trial, Greggs ended its platform exclusivity with Just Eat and began working with a second delivery partner, Uber Eats, in Q323.

The move to delivery reflected the increasing importance of delivery to how people consume food with increased convenience provided by the expansion of companies such as Just Eat. Management believes the motive for using delivery has evolved/is evolving from being mainly based on a lack of desire to cook to it being considered an affordable and regular treat, and therefore a more attractive growth prospect.

The availability of Greggs’ delivery service has evolved quickly, increasing to 1,000 stores by the end of FY21 and in 1,440 shops by the time of the FY23 results, of which 1,340 stores were accessible via Just Eat and 930 stores via Uber Eats. Post the pandemic, delivery’s share of company-managed stores has naturally reduced from 8–10% of company-managed store sales to 5.6% in FY23, the majority of which is generated in the daytime. At c £90m of revenue in FY23, following c 24% y-o-y growth, it contributed just over 1% of Greggs’ total revenue growth in the year. At the October 2021 CMD, management targeted an incremental £180m of delivery revenue during the five-year plan, so it is making reasonable progress against the target.

Sales through the delivery channel have a higher average transaction value, roughly three times the size of the walk-in average transaction value of c £4 given the order is typically for more than one person. The gross margin for delivery is lower than average given the aggregator’s platform fee, partially mitigated through premium pricing on products, and Greggs benefits further down the income statement from leveraging the fixed store operating costs. Removing the exclusivity with Just Eat meant a higher fee to the platform and to Uber Eats, and therefore a reduced gross margin on delivery sales, which management expects to be compensated for by higher aggregate volumes.

Greggs’ C&C service, available on the website and app, allows customers to order in advance and choose where and when to collect the order from a dedicated in-store collection point. It was rolled out to all company-managed stores from September 2020. The consumer benefits from an easier and better shopping experience, with more time to browse the menu and collection from a dedicated collection point reducing the need to queue, a greater guarantee of availability of food, as well as more opportunity to personalise the order given the greater time between order and collection.

More dayparts

The post 4pm dinner market, at an estimated c 38% (source: Greggs CMD 2021 presentation) of the total FOTG market (which simplistically excludes supermarket food bought and prepared at home, and full-service restaurant/pub food) makes it the largest daypart. Due to Greggs’ historical product offer and focus on primarily the lunch and, more latterly, breakfast markets, its share of the FOTG evening daypart was estimated to be 1.6% in 2023, a good increase from the prior year’s 1.2%. It remains well below its share of the breakfast market of 9.9%, lunch 6.8% and snacks 5.1% in 2019, as highlighted at the CMD, and therefore represents a significant source of future growth.

Total evening sales represented 8.7% of Greggs’ company-managed store sales in FY23, and we estimate that evening sales accounted for £130–140m revenue in FY23, the majority of which was from walk-in customers. The evening was the fastest growing daypart for Greggs in FY23, as it was in FY22. At the time of the CMD in FY21, management targeted incremental revenue from evening walk-in customers of £110m, and £70m from evening delivery, albeit recognising the difficulties of estimating the split by channel. We conclude therefore that Greggs has made better progress on developing the walk-in revenue than evening delivery revenue.

The recent growth in market share reflects the significant increase in the number of stores trading beyond 4pm and the required enhancements to the menu to attract those customers.

By the end of FY23, Greggs had extended the opening hours of 1,200 stores until 7pm or beyond. Greggs began experimenting with extending its trading hours to the evening in the autumn of 2019, following some initial development of the menu to offer items more suited to the evening, for example pizzas, and investment in hot food cabinets. The initial trials, before Greggs had a delivery channel, indicated, as might be expected, that evening trading may not be appropriate for all locations but was successful in high footfall locations such as city centres and travel hubs. With delivery in place management believes more locations become viable in the evening, not just those with high footfall.

While products such as pizza slices and chicken goujons have proved to be popular, to drive growth the menu has been enhanced (eg more sides and chicken options), and customisation has begun, initially with pizzas and baguettes. In FY24 new trials will include customisable hot chicken wraps and made-to-order drinks.

Loyalty and CRM: Greater rewards

Improving customer loyalty is seen as a key opportunity in making further market share gains, with a ‘difficult to gauge’ estimate, per management, that improved CRM had the potential generate c 12% of the incremental revenue growth over the five-year growth plan. Management believes that a combination of raising awareness and improved messaging and targeting will drive a combination of increasing frequency of purchase and spend per visit.

Unlike many of its competitors, Greggs does not significantly invest in above-the-line advertising, given the view that direct sight (ie in-store advertising and promotion), word of mouth and social media channels are more cost-effective and efficient.

Central to its ambitions is the Rewards loyalty scheme (originally launched in 2014) and the revamped Greggs App, which enables Greggs to engage with customers more frequently. The app has proven to be very popular with customers, no doubt due to the discounts available. In 2023 12.5% of the transactions in company-managed stores involved scanning the app, a significant increase from 6.2% in FY22.

Supply chain: Peak investment in FY24

Supporting the above growth drivers is ongoing investment in the supply chain and technology. The move away from a traditional bakery, with in-store bakeries, to focus on the FOTG market with significantly more stores has necessitated a dramatic change in the central supply network and store infrastructure. Three/five-year investment plans that began in 2013 and 2016 gradually changed the infrastructure and capacity so that it could support ‘substantially beyond 2,000’ stores.

In the current five-year plan, there is further investment in the supply chain, including additional production lines, a second automated freezer and more distribution capacity. Recent work begun/commissioned includes: an additional pizza line in Enfield in FY22 that tripled its capacity. A fourth savoury production line close to the company’s head office has been commissioned, and the redevelopment of two regional distribution centres will be completed in FY24, the latter adding enough capacity to support 300 more shops. With the FY23 results, management confirmed the locations for two new facilities. The first, to be opened 2026, will provide manufacturing, storage, automated picking and distribution for frozen products including new savoury and sweet production facilities. The second, to be opened in 2027, is a new national distribution centre for ambient and chilled goods. Both are significantly larger than its radial sites, the new national distribution centre provides logistics capacity to 700 shops.

In addition to the investment in infrastructure above, which has constituted the bulk of capex, Greggs has invested in technology and processes to free staff time to devote to customer service, improve food availability as well as drive efficiencies. Greggs began the roll-out of SAP in 2015, and the deployment across the supply chain was completed in FY22. Management believes the core IT infrastructure is well invested, therefore the focus of technology spend will be on digital engagement with customers, as well as ongoing investment in making operations more efficient and systems upgrades.

The overall expected capital investment programme to support the aspiration to double revenue by FY26 was quantified at the time of the CMD in October 2021 at c £890m from FY22–26. The new guidance for capital investment of £250–280m in FY24, £225m in FY25 and £175m in FY26 will take the cumulative investment over the five-year period to £976m, if we use the middle of the guided range for FY24. The higher spend reflects the bringing forward of spend on one of the sites by a year, plus inflation on raw materials, a knock-on effect of Russia’s invasion of Ukraine.

Management

Chief executive: Roisin Currie. Roisin became CEO in May 2022, with previous roles as people director, retail director and property director. Roisin has been a member of the operating board since 2010 and has played a key role in the development of the recent strategic plans. She has been with Greggs since 2010, following 19 years as retail people director at Asda Wal-Mart.

Chief financial officer: Richard Hutton. Richard qualified as a chartered accountant with KPMG and gained career experience with Procter & Gamble before joining Greggs in 1998. He was appointed CFO of Greggs in May 2006. He is also a non-executive director of The Lakes Distillery Company and a director of Business in the Community.

Sensitivities

We see the main sensitivities as:

Greggs is exposed to the outlook for consumer disposable income and spending, however the last two years, which have been challenging for consumers, have shown the appeal of the company’s offer to customers.

Greggs is exposed to staff and input (food and utilities) cost pressures. The disclosed cost profile in descending order of importance in FY23 was: people 37%, food inputs 33%, other c 13%, shop occupancy 8%, depreciation 5% and energy/fuel 4%. The company experienced 8.5% underlying cost inflation in 2023 following 9% inflation in FY22. For FY24, management has indicated underlying cost inflation of 45%, mainly driven by higher staff cost inflation. Food and packaging inflation is expected to be broadly neutral in FY24, while energy costs are expected to be marginally deflationary in the year, with good forward cover of 80% of FY24’s and 50% of FY25’s energy fixed.

Execution risk is a constant. Greggs is undertaking a major infrastructure investment programme, while increasing its store portfolio away from traditional shopping locations, and is trying to develop new revenue streams, for example in new dayparts. Greggs has a strong track record of major supply chain consolidation and implementation of new technology and systems. The shift in store locations reflects that many traditional retail locations are being marginalised, while FOTG has natural relevance to other locations. Although Greggs’ estate policy as well as its renewed offer address this threat, the risk remains that the market switch could be more difficult than management can address.

Greggs’ growth strategy is partly dependent on its success in developing further its business-to-business (B2B) exposure (ie franchises and wholesale), and is therefore dependent on the expansion plans of others. B2B represented c 11% of Greggs’ revenue in FY23, consistent with the prior year.

Like all consumer-facing companies, Greggs is exposed to the longer-term effects from COVID-19 such as changes to work and shopping patterns, including potentially less travel to city centres.

Following the UK’s exit from the EU, there remains potential for changes to regulations and supply chain disruption, including delays to the import of goods. Approximately one-third, by value, of Greggs’ food requirements are imported.

Financials

Greggs enjoyed a better FY23 than we originally anticipated, which is impressive given the challenges elsewhere on the high street. It highlights the appeal of the product offer and the success Greggs is having with its new initiatives. We increased our estimates at the time of the H123 results based on strong top-line growth and management’s guidance for lower underlying cost inflation than originally anticipated.

Income statement: FY23 better than initially expected

At the start of FY23 we forecast a strong year of growth for Greggs: revenue to increase by 13% yo-y to c £1,711m and 9% growth for both operating profit (to c £169m) and PBT (to c £161m). Following a more difficult FY22, when profit growth was limited due to escalating input cost inflation despite strong relative growth, we anticipated better relative profit growth versus revenue growth in FY23, which came through in the numbers. Reported revenue of c £1,810m surpassed our initial estimate by 6%, operating profit of c £172m by 2% and PBT of c £168m by c 4%.

The table below shows the summary income statement for Greggs with our updated estimates for FY24 and FY25 and our new estimates for FY26, the final year of the five-year investment plan. It is clear that Greggs is making good progress on its five-year plan. FY23 reported revenue of c £1,810m is almost exactly halfway to the original five-year target of almost doubling revenue to £2.4bn by FY26, after only the second full financial year. Achieving the target has no doubt been helped by the unexpected high inflation that persisted in FY22 and FY23.

Exhibit 4: Summary income statement

£m

FY18

FY19

*FY20

FY21

FY22

FY23

FY24e

FY25e

FY26e

Sales

1,029.3

1,167.9

811.3

1,229.7

1,512.8

1,809.6

2,013.6

2,230.9

2,465.1

Growth y-o-y (%)

7.2

13.5

(30.5)

51.6

23.0

19.6

11.3

10.8

10.5

Store growth (%)

5.3

5.0

1.4

5.0

6.7

6.2

6.1

5.7

5.4

Gross profit

655.9

755.7

511.7

782.0

938.3

1,099.1

1,215.4

1,341.4

1,477.2

Gross margin (%)

63.7

64.7

63.1

63.6

62.0

60.8

60.4

60.1

59.9

Gross margin leverage (%)

63.4

72.1

68.4

64.6

55.2

54.2

57.0

58.0

58.0

Operating costs

(510.1)

(523.8)

(396.3)

(523.0)

(668.4)

(799.9)

(870.9)

(956.4)

(1,064.5)

% of sales

49.6

44.8

48.8

42.5

44.2

44.2

43.2

42.9

43.2

EBITDA

145.7

231.9

115.4

259.0

269.9

299.2

344.5

385.0

412.7

Margin (%)

14.2

19.9

14.2

21.1

17.8

16.5

17.1

17.3

16.7

Depreciation and amortisation

(55.9)

(111.2)

(121.6)

(105.8)

(115.5)

(127.5)

(154.0)

(172.4)

(182.8)

Operating profit before exceptionals

89.8

120.7

(6.2)

153.2

154.4

171.7

190.5

212.6

229.9

Margin (%)

8.7

10.3

(0.8)

12.5

10.2

9.5

9.5

9.5

9.3

PBT before exceptionals

89.8

114.2

(12.9)

145.6

148.3

167.7

182.8

201.4

218.2

Normalised EPS (FD) (p)

70.3

89.7

(12.1)

114.3

117.5

123.8

131.1

144.4

156.5

Ordinary DPS (p)

35.7

11.9

0.0

57.0

59.0

62.0

65.5

72.2

78.3

Special DPS (p)

0.0

35.0

0.0

40.0

0.0

40.0

0.0

0.0

0.0

Source: Greggs, Edison Investment Research. Note: *53 weeks.

FY23 year-on-year revenue growth of 19.6% included 13.7% like-for-like growth on company-managed stores. The year was helped by the flow through of price increases made in May, October and December 2022 and price rises made in June 2023. The latter price rise and one made at the end of December 2023 will flow through into FY24’s like-for-like revenue growth. The net addition of 145 stores to a total of 2,473 by the period end was equivalent to just over 6% growth from the numbers of stores at the end of FY22.

The reported gross margin for FY23 of 60.8% versus FY22’s 62.0% was below our estimate from the start of the year of 61.7%. The lower margin reflected a combination of food cost inflation exceeding Greggs’ own selling price inflation, increased customer participation with the app and the growth of delivery, which has a lower gross margin than company own sales due to the fees to the delivery platform companies. There was also a one-off step change to gross margin on delivery sales from higher fees to the delivery platforms as Greggs moved from its exclusive relationship with Just Eat in Q323.

Greggs aims to recover overall cost inflation at the operating profit level, however the differing levels of inflation for individual costs will, naturally, affect the individual line items in different ways. The gross margin, above, was negatively affected by higher relative cost inflation in cost of goods than selling prices increased. Conversely, operating costs below gross margin had lower relative cost inflation and declined relative to revenue in FY23.In particular, distribution and selling costs benefited from cost inflation being lower than selling price inflation and despite investment in store staff costs for evening trading and additional marketing. Underlying cost inflation was 8.5% in 2023, with greater cost inflation of 11% in H123 than H223’s 6%. Management has guided to 4–5% underlying cost inflation in FY24, mainly driven by 9.5% overall inflation in its largest cost item, wages and salaries, which compounds the 8% experienced in FY23. Food and packaging (33% of the cost base) inflation are expected to be broadly neutral, while energy costs (4% of the cost base) are expected to be marginally deflationary.

Greggs’ overall corporate tax burden has increased with the rise in the standard corporation tax rate to 25% from 19% from 1 April 2023. Going forward management anticipates its effective tax rate will increase to 1% above the headline rate due to expenditure for which no tax relief is available (eg depreciation of properties acquired before the introduction of structures and buildings tax allowances) and acquisition costs relating to new shops.

Cash flow and balance sheet: Strong balance sheet ahead of FY24 peak investment

Prior to the COVID-19 pandemic, Greggs’ improved profitability fed through to higher free cash flow generation in absolute terms and, more importantly, relative to revenue. Post the outbreak of the pandemic, free cash flow generation has been a little more variable as profitability has decreased marginally, as explained above, and the capex programme to support the five-year growth plan has gradually increased.

Exhibit 5: Summary cash flow

As % of sales:

FY18

FY19

* FY20

FY21

FY22

FY23

FY24e

FY25e

FY26e

Operating cash flow

13.2%

18.8%

5.4%

23.2%

16.6%

17.2%

15.1%

15.2%

14.7%

Operating profit

8.7%

10.3%

(0.8)%

12.5%

10.2%

9.5%

9.5%

9.5%

9.3%

Net profit

6.4%

7.4%

(1.6)%

9.6%

8.0%

7.9%

6.7%

6.7%

6.6%

Depreciation, amortisation and impairments

5.5%

9.5%

15.6%

8.4%

7.7%

7.1%

7.7%

7.7%

7.4%

Working capital

1.2%

1.8%

(7.3)%

4.5%

0.4%

0.3%

0.7%

0.6%

0.6%

Tax paid

(1.6)%

(1.7)%

(1.3)%

(1.6)%

(0.9)%

(0.7)%

(2.4)%

(2.3)%

(2.3)%

Interest paid

0.0%

(0.6)%

(0.9)%

(0.6)%

(0.5)%

(0.6)%

(0.5)%

(0.6)%

(0.5)%

Capex and intangibles

(6.3)%

(7.5)%

(7.4)%

(4.4)%

(6.7)%

(10.9)%

(13.2)%

(10.1)%

(7.1)%

Free cash flow pre-interest

6.9%

11.8%

(1.1)%

19.4%

10.5%

6.8%

2.5%

5.7%

8.2%

Cash at end (£m)

88.2

91.3

36.8

198.6

191.6

195.3

73.0

54.3

100.6

Net debt/(cash) excluding leases (£m)

(88.2)

(91.3)

(36.8)

(198.6)

(191.6)

(195.3)

(73.0)

(54.3)

(100.6)

Net debt/(cash) including leases (£m)

N/A

184.4

254.9

84.6

109.7

124.3

321.6

358.3

329.9

Source: Greggs, Edison Investment Research. Note: *53 weeks.

Management has been clear that FY24 will be the peak year for capital investment in the five-year plan. The guided spend for £250–280m in FY24 followed by c £225m in FY25 and c £175m in FY26 and the phasing of the spend has changed a little from the guidance this time last year of £220m, £200m and £190m, respectively. Prior to the pandemic, gross investment in tangibles and intangibles averaged just over 7% of revenue, which includes expansionary capex.

Greggs finished FY23 with a better gross cash position (c £193m) than we had anticipated (£172m), mainly due to the insurance proceeds received. This enabled management to declare a special dividend of 40p/share at a cost of c £41m, a very welcome surprise as management had previously indicated special dividends were unlikely while it goes through the peak of capital investment. Shareholders have been well-rewarded with ordinary dividends (progressive dividend policy with dividend cover of 2x by diluted earnings) and special dividends, which have become frequent in recent years (ie in FY15, FY19, FY21 and FY23).

Greggs has no debt apart from operating leases, which totalled c £320m at the end of FY23, but it has a £100m revolving credit facility (RCF) that runs until December 2025, which was undrawn at the end of FY23. Management intends to refinance the RCF in the year ahead.

Greggs generates a very attractive pre-tax return on capital employed that has typically been above 20% since FY19, excluding 2020, which was negatively affected by the initial outbreak of the COVID pandemic. The increase in the asset base over the next few years during the peak investment cycle is expected to lead to a dilution in the return, back towards a still very respectable 20%.

Exhibit 6: Greggs’ return on capital employed

Source: Greggs, Edison Investment Research. Note: *53 weeks.

New estimates: Double-digit CAGR for revenue and operating profit

The main changes to our estimates for key figures in FY24 and FY25 are shown in Exhibit 7.

Exhibit 7: Changes to estimates

£m

FY23

FY24e new

FY25e new

FY26e new

FY24e old

FY25e old

FY24e change

FY25e change

Revenue

1,809.6

2,013.6

2,230.9

2,465.1

1,970.5

2,196.6

2.2%

1.6%

Growth y-o-y

11%

11%

10%

9%

11%

Gross profit

1,099.1

1,215.4

1,341.4

1,477.2

1,194.4

1,328.1

1.8%

1.0%

Gross margin

60.7%

60.4%

60.1%

59.9%

60.6%

60.5%

(0.3%)

(0.3%)

Operating profit

171.7

190.5

212.6

229.9

190.0

212.2

0.2%

0.2%

Operating margin

9.5%

9.5%

9.5%

9.3%

9.6%

9.7%

(0.2%)

(0.1%)

Profit before tax

167.7

182.8

201.4

218.2

186.0

207.7

(1.8%)

(3.1%)

Growth y-o-y

9%

10%

8%

11%

12%

Source: Greggs, Edison Investment Research

Our operating profit estimates for FY24 and FY25 are relatively unchanged but we reduce our PBT estimates by 2–3% respectively to take account of both lower interest income on cash balances given the unexpected special dividend payment and higher capital investment guidance from management. In addition, one of the new supply chain facilities will be funded with a new operating lease, which also increases interest payable from FY25.

Our revenue estimates have increased to reflect a better contribution from new and larger stores, which is consistent with the trends of recent years. Our revenue estimate for FY26 surpasses management’s five-year target of £2.4bn, which is logical given the extra help provided by higher-than-expected selling price inflation in the last two financial years. The forecast CAGR for revenue growth of 10–11% includes 5–6% new space growth each year.

We have trimmed our gross margin estimates for FY24 and FY25 by 30bp to reflect the benefit of better relative selling price inflation versus cost inflation, a reversal of FY23, offset by some dilution from more sales via the app and growing delivery revenue across two platforms with the previously mentioned less favourable commission rates on those platforms.

Valuation

We primarily value Greggs using a DCF-based valuation and look at its prospective multiples, growth estimates and profitability versus a relatively imperfect group of quoted peers, and relative to its own historical valuation multiples.

DCF valuation

Our 10-year DCF valuation yields a fair value of £30.20/share (£29.70/share previously). Beyond our explicit forecast period, the calculation assumes annual revenue growth fades to 3% by our terminal year, FY33, and then terminal growth of 2%. After the indicated capital investment programme, we assume fixed capital investment of 5% of sales and working capital investment of 1% of sales. In addition, we include an imputed outflow for right-of-use assets of 3% of sales.

We use a cost of capital of 9.0% (10% previously) as we factor in both lower bond yields of 4.0% (4.5% previously) and equity risk premium of 5.5% (source: Damodaran, January 2024) (5.9% previously). The table below shows the sensitivity of our valuation to changes in the cost of capital and terminal growth rate assumptions.

Exhibit 8: DCF sensitivity

Terminal growth

WACC

8.0%

8.5%

9.0%

9.5%

10.0%

1.0%

3,262

2,989

2,752

2,543

2,358

1.5%

3,443

3,140

2,878

2,650

2,449

2.0%

3,654

3,314

3,023

2,771

2,552

2.5%

3,904

3,516

3,190

2,910

2,669

3.0%

4,203

3,756

3,384

3,071

2,803

Source: Edison Investment Research

Peer comparison: Deserved premium versus UK companies

Below we show how Greggs’ revenue growth, profitability and valuation compare with three set of peers: UK restaurants and pubs, UK restaurants and UK food retailers, all annualised to Greggs’ December year-end.

Exhibit 9: Peer valuation

Share price (local ccy)

Ccy

Market cap (local m)

Sales growth CY24 (%)

Sales growth CY25 (%)

EBIT margin CY24 (%)

EBIT margin CY25 (%)

EV/ Sales '24 (x)

EV/ Sales '25 (x)

P/E '24 (x)

P/E '25 (x)

Div. yield '24 (%)

Div. yield '25 (%)

Domino's Pizza Group PLC

349

GBp

1,376

4

10

17.7

17.8

2.6

2.3

17.0

14.6

3.2

3.4

Loungers PLC

206

GBp

212

16

14

7.4

7.6

1.0

0.9

18.3

14.4

0.0

0.0

Marston's PLC

49

GBp

309

3

3

17.4

17.9

1.9

1.9

4.0

3.3

0.0

0.0

SSP Group PLC

260

GBp

2,058

13

8

7.1

7.5

0.9

0.9

18.2

14.6

2.1

2.6

J D Wetherspoon PLC

560

GBp

716

5

4

6.8

7.1

1.0

0.9

16.4

13.8

0.0

0.0

UK restaurants and pubs median

5

8

7.4

7.6

1.0

0.9

17.0

14.4

0.0

0.0

Domino's Pizza Inc

390.1

USD

13,999

(1)

7

18.3

18.4

4.6

4.3

31.2

29.1

1.3

1.4

McDonald's Corp

264.2

USD

195,410

10

5

46.8

46.9

9.4

8.9

23.7

22.7

2.4

2.5

Starbucks Corp

84.9

USD

97,383

11

8

16.3

17.1

3.1

2.9

24.7

21.5

2.6

2.8

Wendys Co

21.2

USD

4,546

4

4

17.8

16.8

3.0

2.9

19.1

18.6

5.5

6.0

Yum! Brands Inc

122.7

USD

35,001

3

10

34.0

33.3

6.9

6.3

26.4

23.5

2.0

2.1

US restaurants median

4

7

18.3

18.4

4.6

4.3

24.7

22.7

2.4

2.5

J Sainsbury PLC

221

GBp

5,133

4

2

3.0

3.1

0.3

0.3

11.9

11.6

5.3

5.6

Tesco PLC

265

GBp

19,697

5

3

4.2

4.2

0.5

0.4

12.5

11.7

4.3

4.6

UK food retailer median

4

2

3.6

3.6

0.4

0.4

12.2

11.6

4.8

5.1

Greggs

2,812

GBp

2,875

11

11

9.5

9.5

1.4

1.3

21.5

19.5

2.3

2.6

Greggs premium/ (discount) to UK restaurants median

37%

42%

26%

35%

N/A

N/A

Greggs premium/ (discount) to US restaurants median

(71)%

(69)%

(13)%

(14)%

(2)%

2%

Greggs premium/ (discount) to UK food retailer median

248%

250%

76%

68%

(52)%

(50)%

Source: LSEG, Edison Investment Research. Note: Priced at 27 March 2024.

Our forecasts of low-double-digit revenue growth for Greggs in FY24 and FY25 compare favourably with the majority of the highlighted peers, while our estimated profitability (EBIT margin of 9.5% in FY24 and FY25) is higher than the medians for the separate UK-listed industry groups, but not the US-listed restaurants, many of which operate a franchise model. Greggs’ premium revenue growth and higher profitability versus the majority of the UK-based peers support higher EV/sales and P/E multiples. Greggs trades at a significant discount on both valuation measures relative to the US peers.

Valuation relative to own history

In the charts below we show Greggs’ prospective EV/sales and P/E multiples versus its historical high, average (number quoted) and low multiples since FY13, when the FOTG strategy was introduced.

In the first chart, our calculation of enterprise value (EV) excludes lease liabilities to enable an easy comparison across time, that is before FY19 when IFRS 16 was introduced. Therefore the EV/sales multiples will differ slightly to those in the previous section as these included IFRS 16 liabilities. The chart also shows Greggs’ operating margin for all years except FY20, when it reported an operating loss. In the second chart, we have excluded FY20 all together given the reported net loss.

Exhibit 10: Greggs’ EV/sales multiple

Exhibit 7: Greggs’ P/E multiple

Source: LSEG, Greggs, Edison Investment Research. Note: Priced at 1 April 2024.

Source: LSEG, Greggs, Edison Investment Research. Note: Priced at 1 April 2024.

Exhibit 10: Greggs’ EV/sales multiple

Source: LSEG, Greggs, Edison Investment Research. Note: Priced at 1 April 2024.

Exhibit 7: Greggs’ P/E multiple

Source: LSEG, Greggs, Edison Investment Research. Note: Priced at 1 April 2024.

We can see Greggs’ EV/sales multiple broadly trended up post FY13, as did its profitability. Trading multiples in FY20 and FY21 were, naturally, affected by the distortions from the pandemic. If we exclude these years, the long-term average EV/sales multiple from FY13 was 1.1x, and a range of 1.1–1.6x since FY15 when the benefits of the FOTG strategy began to show through in higher levels of profitability that are more consistent with current and expected levels of profitability. The prospective EV/sales multiples for FY24 of 1.4x down to 1.1x in FY26 are at the middle to low end of these historical multiples, suggesting the share price is well-supported.

Similarly for Greggs’ P/E multiple, the FOTG strategy was helpful with a trend upwards from FY13, with an average from FY13 of 18.3x, and an average since FY15 of 19x within a range of 16.5–23.0x, albeit the latter was in FY21 and likely to have been distorted by the pandemic. The prospective multiples for FY24 onwards of 21.9x and lower are therefore towards the mid/upper end of recent average multiples.

Exhibit 12: Financial summary

£m

2020

2021

2022

2023e

2024e

2025e

2026e

Year-end December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

811.3

1,229.7

1,512.8

1,809.6

2,013.6

2,230.9

2,465.1

Cost of Sales

(299.6)

(447.7)

(574.5)

(710.5)

(798.2)

(889.5)

(987.8)

Gross Profit

511.7

782.0

938.3

1,099.1

1,215.4

1,341.4

1,477.2

EBITDA

 

 

115.4

259.0

269.9

299.2

344.5

385.0

412.7

Operating profit (before amort. and excepts.)

 

 

(6.2)

153.2

154.4

171.7

190.5

212.6

229.9

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

(0.8)

0.0

0.0

20.6

0.0

0.0

0.0

Operating Profit

(7.0)

153.2

154.4

192.3

190.5

212.6

229.9

Net Interest

(6.7)

(7.6)

(6.1)

(4.0)

(7.7)

(11.2)

(11.7)

Profit Before Tax (norm)

 

 

(12.9)

145.6

148.3

167.7

182.8

201.4

218.2

Profit Before Tax (FRS 3)

 

 

(13.7)

145.6

148.3

188.3

182.8

201.4

218.2

Tax

0.7

(28.1)

(28.0)

(41.0)

(47.5)

(52.4)

(56.7)

Profit After Tax (norm)

(12.2)

117.5

120.3

126.7

135.2

149.0

161.5

Profit After Tax (FRS 3)

(13.0)

117.5

120.3

142.5

135.2

149.0

161.5

Average Number of Shares Outstanding (m)

101.0

101.5

101.5

101.3

102.2

102.2

102.2

EPS - normalised fully diluted (p)

 

 

(12.1)

114.3

117.5

123.9

131.1

144.4

156.5

EPS - (IFRS) (p)

 

 

(12.9)

115.7

118.5

140.6

132.3

145.8

158.0

Dividend per share (p)

0.0

97.0

59.0

102.0

65.5

72.2

78.3

Gross Margin (%)

63.1

63.6

62.0

60.7

60.4

60.1

59.9

EBITDA Margin (%)

14.2

21.1

17.8

16.5

17.1

17.3

16.7

Operating Margin (before GW and except.) (%)

(0.8)

12.5

10.2

9.5

9.5

9.5

9.3

BALANCE SHEET

Fixed Assets

 

 

631.0

622.3

685.1

825.2

1,068.5

1,199.0

1,272.0

Intangible Assets

15.6

14.9

13.5

18.3

24.7

28.5

29.9

Tangible Assets

345.3

343.8

390.0

510.3

672.1

780.9

834.5

Right-of-Use Assets

270.1

263.6

281.6

296.6

371.7

389.6

407.6

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

98.7

266.1

283.0

297.9

187.7

181.8

241.8

Stocks

22.5

27.9

40.6

48.8

54.8

61.1

67.8

Debtors

39.4

37.6

50.2

53.8

59.9

66.3

73.3

Cash

36.8

198.6

191.6

195.3

73.0

54.3

100.6

Other

0.0

2.0

0.6

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(144.1)

(206.9)

(244.1)

(272.5)

(301.2)

(331.0)

(362.9)

Creditors

(91.1)

(153.4)

(191.7)

(216.0)

(242.1)

(269.2)

(298.4)

Leases

(48.6)

(49.3)

(48.8)

(52.5)

(55.2)

(57.8)

(60.5)

Short term borrowings

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(4.4)

(4.2)

(3.6)

(4.0)

(4.0)

(4.0)

(4.0)

Long Term Liabilities

 

 

(264.0)

(252.3)

(284.3)

(326.3)

(398.7)

(414.0)

(429.3)

Long term borrowings

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Leases

(243.1)

(233.9)

(252.5)

(267.1)

(339.5)

(354.8)

(370.1)

Other long term liabilities

(20.9)

(18.4)

(31.8)

(59.2)

(59.2)

(59.2)

(59.2)

Net Assets

 

 

321.6

429.2

439.7

524.3

556.3

635.8

721.6

CASH FLOW

Operating Cash Flow

 

 

61.6

312.1

272.3

333.0

363.5

404.4

433.2

Net Interest

(6.7)

(7.4)

(6.1)

(4.2)

(7.0)

(10.5)

(11.0)

Tax

(10.7)

(19.2)

(13.3)

(11.9)

(47.5)

(52.4)

(56.7)

Capex

(59.8)

(54.0)

(100.8)

(197.3)

(265.0)

(225.0)

(175.0)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Equity financing

3.7

4.6

3.1

3.6

3.6

3.6

3.6

Dividends

0.0

(15.3)

(98.5)

(60.8)

(107.6)

(73.8)

(80.0)

Borrowings and lease liabilities

(42.1)

(49.0)

(52.7)

(53.7)

(57.3)

(60.0)

(62.8)

Other

(0.5)

(10.0)

(11.0)

(5.0)

(5.0)

(5.0)

(5.0)

Net Cash Flow

(54.5)

161.8

(7.0)

3.7

(122.3)

(18.7)

46.3

Opening cash

 

 

91.3

36.8

198.6

191.6

195.3

73.0

54.3

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Closing cash

 

 

36.8

198.6

191.6

195.3

73.0

54.3

100.6

Closing net debt/(cash)

 

 

(36.8)

(198.6)

(191.6)

(195.3)

(73.0)

(54.3)

(100.6)

Closing net debt/(cash) including leases

 

 

254.9

84.6

109.7

124.3

321.6

358.3

329.9

Source: Greggs, Edison Investment Research

Contact details

Revenue by geography

Greggs House
Quorum Business Park
Newcastle upon Tyne
NE12 8BU
United Kingdom
+44 (0)191 281 7721
https://corporate.greggs.co.uk

Contact details

Greggs House
Quorum Business Park
Newcastle upon Tyne
NE12 8BU
United Kingdom
+44 (0)191 281 7721
https://corporate.greggs.co.uk

Revenue by geography

Management team

Chief executive: Roisin Currie

Chief financial officer: Richard Hutton

Roisin became CEO in May 2022, with previous roles as people director, retail director and property director. Roisin has been a member of the operating board since 2010 and has played a key role in the development of the recent strategic plans. She has been with Greggs since 2010, following 19 years as retail people director at Asda Wal-Mart.

Richard qualified as a chartered accountant with KPMG and gained career experience with Procter & Gamble before joining Greggs in 1998. He was appointed CFO in May 2006. He is also a non-executive director of The Lakes Distillery Company and a director of Business in the Community.

Management team

Chief executive: Roisin Currie

Roisin became CEO in May 2022, with previous roles as people director, retail director and property director. Roisin has been a member of the operating board since 2010 and has played a key role in the development of the recent strategic plans. She has been with Greggs since 2010, following 19 years as retail people director at Asda Wal-Mart.

Chief financial officer: Richard Hutton

Richard qualified as a chartered accountant with KPMG and gained career experience with Procter & Gamble before joining Greggs in 1998. He was appointed CFO in May 2006. He is also a non-executive director of The Lakes Distillery Company and a director of Business in the Community.

Principal shareholders

(%)

Schroder Investment Management

5.0

Royal London Asset Management

4.9

MFS Investment Management

4.9

Fiduciary Management

4.7

Aviva Investors Global Services

3.9

BlackRock Institutional Trust

3.5

The Vanguard Group

3.3


General disclaimer and copyright

This report has been commissioned by Greggs and prepared and issued by Edison, in consideration of a fee payable by Greggs. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Greggs and prepared and issued by Edison, in consideration of a fee payable by Greggs. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on Greggs

View All

Consumer

Greggs — Encouraging start to FY24

Consumer

Greggs — Showing us how it’s done

Consumer

Greggs — A strong finish to FY23

Latest from the Consumer sector

View All Consumer content

Research: Industrials

Information Services Corporation — A busy end to a record FY23

In FY23, Information Services Corporation (ISC) enjoyed year-on-year top-line and adjusted operating profit growth, augmented by consistent organic expansion of its Services division and incremental earnings from fee uplifts linked to the Master Service Agreement (MSA) extension. Management’s encouraging FY24 guidance reflects organic growth potential from the Services division, alongside a full-year impact of earnings accretion from fee adjustments. We have raised our valuation modestly from C$37/share to C$40/share, which implies 48% upside.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free