Trading in the first seven weeks was exceptionally strong, with like-for-like sales growth of 9.6% (FY18: 2.9%) and total sales up 14.1% (FY18: 6.2%). Demand was led by Greggs’ newly launched vegan sausage roll, but extended to the regular sausage roll, along with other savoury products. We infer that the launch publicity succeeded in its aims of bringing new customers into the stores. Greggs is working to verify this and will give more detail at full-year results in two weeks’ time. Early supply problems given the scale of demand for the vegan sausage roll have now been resolved, with more than 80% of stores now being supplied.

The social media launch publicity included a YouTube video simulating an Apple launch as well as a trial ‘tasting’ by Piers Morgan, which attracted wide attention. Smart social media publicity like this has a serious underlying purpose of disrupting entrenched assumptions about Greggs’ brand, and bringing new customers into its stores, which have been transformed into food-on-the-go outlets over the past six years, with a food offer including healthy ranges as well as traditional products.  

The exceptional growth to date also benefited from last year’s extreme weather, and has pulled back slightly in February. However, it should still leave the first half materially ahead of expectations, while FY18 l-f-l comps strengthen through the year: Q1: 1.2%; Q2: 1.8%; Q3: 3.2%; Q4: 5.2%. On our assumption of 6% H1 l-f-l growth, we upgrade our FY18 PBT and EPS forecast by 8%. We still assume H2 like-for-like growth of only 1%, leaving potential for further upside if this proves to be over-conservative. 

Greggs’ shares trade close to our DCF valuation of 1,692p, which assumes revenue growth beyond FY20 of 6% fading to 2% and a perpetuity EBITDA margin of 15.7% (2020e:14.9%). As with forecasts, there is upgrade potential. Our peer comparison would suggest 1,523p. However, this includes some indebted companies, which is not the case for Greggs, where we now forecast FY18 net cash of £49m.