Currency in GBP
Last close As at 26/05/2023
GBP26.58
▲ 4.00 (0.15%)
Market capitalisation
GBP2,714m
Research: Consumer
Greggs’ FY19 PBT was 1% ahead of our expectations and current trading suggests it will continue to take market share in the growing food-on-the-go market. Greggs has many opportunities to accelerate growth in the medium term: more and larger stores; the shift from a single channel to multichannel; further product innovation; and more investment in its supply chain, funded by strong cash generation. There is near-term risk, as with the sector in general, if the coronavirus results in people staying away from public places. Our PBT forecast for FY20 increases by 2% and our DCF-based valuation increases by c 4% to 2,188p.
Greggs |
Very tasty |
FY19 results |
Retail |
4 March 2020 |
Share price performance
Business description
Next events
Analysts
Greggs is a research client of Edison Investment Research Limited |
Greggs’ FY19 PBT was 1% ahead of our expectations and current trading suggests it will continue to take market share in the growing food-on-the-go market. Greggs has many opportunities to accelerate growth in the medium term: more and larger stores; the shift from a single channel to multichannel; further product innovation; and more investment in its supply chain, funded by strong cash generation. There is near-term risk, as with the sector in general, if the coronavirus results in people staying away from public places. Our PBT forecast for FY20 increases by 2% and our DCF-based valuation increases by c 4% to 2,188p.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
1,029.3 |
89.8 |
70.3 |
35.7 |
30.8 |
1.6 |
12/19 |
1,167.9 |
114.2 |
89.7 |
44.9 |
24.1 |
2.1 |
12/20e |
1,274.6 |
122.0 |
96.6 |
49.0 |
22.4 |
2.3 |
12/21e |
1,354.1 |
129.4 |
102.5 |
52.0 |
21.1 |
2.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY19: Margin increase with inflation and investment
For FY19, Greggs reported l-f-l sales growth of 9.2% and the gross margin increased by 100bp to 64.7% (despite increased COGS inflation) as it benefited from strong volume growth and the ongoing transformation investment in infrastructure. The operating margin increased by 160bp, while funding additional performance-based bonuses for staff and investment in initiatives that should drive future growth. DPS for the year increased by 25.8%, and management is considering another special dividend at the time of the H120 results, following a special dividend of 35p with the H119 results. Cash generation was strong, with a year-end net cash position of £91.3m versus £88.2m at the end of FY18.
FY20: PBT forecast increased by 2%
With l-f-l growth of 7.5%, despite February being affected by poor weather, the trading statement for the first nine weeks of FY20 is strong against the comparative seven weeks of FY19 of 9.6% l-f-l growth. It provides confidence that the strategy is capable of delivering further growth as comparatives get tougher through FY20. We increase our assumption for l-f-l growth in FY20 from 2% to 5%. We assume the gross margin falls by 160bp to reflect greater food input inflation and staff cost inflation, which cannot be offset by the traditional levers of efficiencies and pricing. For FY21, we assume 2% l-f-l growth and no gross margin improvement. Our PBT forecast for FY20 increases by 2%, growth of 6% y-o-y, and our forecasts for FY21 generate 6% PBT growth. We assume a higher effective tax rate of 20.5% in both years.
Valuation: Upgraded by 4%
On our new forecasts, the 2020e P/E is 22.4x. Following the upgrade to forecasts and rolling forward our assumptions, our DCF-based valuation increases by c 4% to 2,188p from 2,096p
Exhibit 1: Financial summary
£m |
2017 |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
960.0 |
1,029.3 |
1,167.9 |
1,274.6 |
1,354.1 |
Cost of Sales |
(348.1) |
(373.4) |
(412.2) |
(470.1) |
(499.4) |
||
Gross Profit |
611.9 |
655.9 |
755.7 |
804.6 |
854.7 |
||
EBITDA |
|
|
135.7 |
145.7 |
232.7 |
244.7 |
258.7 |
Operating Profit (before amort. and except.) |
|
|
82.2 |
89.8 |
120.7 |
129.9 |
137.9 |
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(9.9) |
(7.2) |
(5.9) |
(2.2) |
0.0 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
72.3 |
82.6 |
114.8 |
127.7 |
137.9 |
||
Net Interest |
(0.4) |
(0.0) |
(6.5) |
(7.9) |
(8.5) |
||
Profit Before Tax (norm) |
|
|
81.8 |
89.8 |
114.2 |
122.0 |
129.4 |
Profit Before Tax (FRS 3) |
|
|
71.9 |
82.6 |
108.3 |
119.8 |
129.4 |
Tax |
(16.9) |
(18.2) |
(22.4) |
(23.2) |
(24.6) |
||
Profit After Tax (norm) |
64.9 |
71.6 |
91.8 |
98.8 |
104.8 |
||
Profit After Tax (FRS 3) |
56.9 |
65.7 |
87.0 |
95.2 |
102.8 |
||
Average Number of Shares Outstanding (m) |
100.6 |
100.7 |
100.8 |
100.8 |
100.8 |
||
EPS - normalised fully diluted (p) |
|
|
63.5 |
70.3 |
89.7 |
96.6 |
102.5 |
EPS - (IFRS) (p) |
|
|
56.5 |
65.3 |
86.3 |
94.5 |
102.0 |
Dividend per share (p) |
32.3 |
35.7 |
44.9 |
49.0 |
52.0 |
||
Gross Margin (%) |
63.7 |
63.7 |
64.7 |
63.1 |
63.1 |
||
EBITDA Margin (%) |
14.1 |
14.2 |
19.9 |
19.2 |
19.1 |
||
Operating Margin (before GW and except.) (%) |
8.6 |
8.7 |
10.3 |
10.2 |
10.2 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
334.7 |
347.5 |
646.5 |
673.5 |
694.4 |
Intangible Assets |
14.7 |
16.9 |
16.8 |
17.7 |
18.4 |
||
Tangible Assets |
319.2 |
330.5 |
626.4 |
652.5 |
672.7 |
||
Investments |
0.8 |
0.2 |
3.3 |
3.3 |
3.3 |
||
Current Assets |
|
|
106.6 |
140.6 |
142.3 |
136.0 |
163.5 |
Stocks |
18.7 |
20.8 |
23.9 |
26.9 |
29.4 |
||
Debtors |
33.4 |
31.6 |
27.1 |
43.7 |
48.2 |
||
Cash |
54.5 |
88.2 |
91.3 |
65.5 |
85.9 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(127.9) |
(145.1) |
(208.7) |
(205.4) |
(204.6) |
Creditors |
(127.9) |
(145.1) |
(208.7) |
(205.4) |
(204.6) |
||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(14.0) |
(13.8) |
(233.3) |
(230.9) |
(230.5) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(14.0) |
(13.8) |
(233.3) |
(230.9) |
(230.5) |
||
Net Assets |
|
|
299.4 |
329.2 |
346.8 |
373.2 |
422.8 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
134.5 |
152.2 |
246.0 |
162.8 |
192.8 |
Net Interest |
0.2 |
0.2 |
0.3 |
0.0 |
0.0 |
||
Tax |
(17.6) |
(16.1) |
(20.3) |
(35.2) |
(26.6) |
||
Capex |
(72.6) |
(66.6) |
(89.1) |
(105.0) |
(95.0) |
||
Acquisitions/disposals |
2.2 |
1.7 |
1.4 |
0.0 |
0.0 |
||
Financing |
(6.0) |
(4.7) |
(6.9) |
0.0 |
0.0 |
||
Dividends |
(32.2) |
(33.1) |
(72.1) |
(48.3) |
(50.8) |
||
Net Cash Flow |
8.5 |
33.7 |
59.3 |
(25.8) |
20.4 |
||
Opening net debt/(cash) |
|
|
(46.0) |
(54.5) |
(88.2) |
(91.3) |
(65.5) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
(56.2) |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(54.5) |
(88.2) |
(91.3) |
(65.5) |
(85.9) |
Source: Company accounts, Edison Investment Research
|
|
UmweltBank’s (UBK’s) FY19 earnings (based on preliminary results) were broadly flat compared to the prior year and in line with our expectations, as higher earnings before admin expenses and taxes were largely offset by the increase in G&A costs (cost-income ratio of 39.2% vs 32.7% in FY18). High costs related to investments in IT infrastructure and the introduction of new products coupled with persistent market headwinds (low interest rates and weak wind capacity additions in Germany) suggest UBK’s earnings recovery is likely to occur after FY20 (company FY20 PBT guidance is €36m). As a result, we have lowered our earnings forecasts and valuation by c 5–15%.
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