Greggs’ interim results were heavily affected by the estate closure for the majority of Q220, due to COVID-19. The key takeaways are that operating cash burn during lockdown was in line with management expectations, and current trading, albeit with limited data, indicates gradual weekly progress in revenue, described by management as encouraging. We assume recovery through H121e, before stabilising at a revenue run-rate equivalent to 90% of the level in FY19. The resulting EV/sales multiple of 1.2x for FY21e, is in line with recent multiples. It reflects lower estimated revenue in that year and uncertainty about the rate of recovery.
Greggs’ H120 revenue declined by 45% to £300.6m and it generated its first-ever operating loss, which reflects the fact that the majority of the estate did not trade for a large part of Q220, after a previously reported strong start to the year. Operating costs have been managed in line with expectations and, since reopening, revenue trends have been gradually improving – although down by 28% (latest week) versus FY19. The company has moved from its typical net cash position to a net debt position of £26.2m at the end of H120; therefore, no dividend has been declared for H120. As revenue recovers, management’s priority is to rebuild the balance sheet, after short-term refinancing, in order to repay funding received from the government, ahead of cash returns to shareholders.
Management has not provided financial guidance for FY20e, but has indicated that it expects to achieve PBT break-even at revenue levels equivalent to 80% of that achieved in FY19. In our reinstated estimates, we assume a like-for-like decline in revenue in H220e of 25.7% and a modest operating loss of £5.2m. We forecast that revenue in FY21e, including some new space growth, will be approximately 89% of that reported in FY19, and that PBT will be approximately 53% of FY19’s, with the inclusion of interest payments on the new debt. We assume a dividend of 15p/share will be reinstated for H221e.
With a forecast loss before tax in FY20, analysis of near-term, earnings-based multiples is not possible. At 1,242p, the EV/sales multiple for FY21e is 1.2x, compared to the average since FY08 of 0.9x, and the average of 1.2x since FY15, when its growth rate accelerated as the strategy delivered positive results. The P/E multiple for FY21e of 25.9x compares with the average since FY15 of 18.6x.