Bucking the wider trend, Greggs has upgraded expectations for FY18 underlying pre-tax profit to be ‘at least £86m’ (Edison: £81.3m), following a stronger than anticipated eight weeks to 24 November. Over the period, leading on from a solid third quarter, total sales increased by 9.0% (Q318: 7.3%) and like-for-like sales in company-managed shops increased by 4.5% (Q318: 3.2%). Over the year to date, total and like-for-like sales have increased by 6.6% and 2.5%, respectively, against tough prior year comparatives, while operating costs have been well controlled. 

The company is continuing to introducing innovative new product ranges and expand the brand into new dayparts, including breakfast. New store openings are targeting work- and leisure-related footfall as opposed to dwindling high-street trade, while the supply chain overhaul is creating solid foundations for growth. 

We upgrade our FY18e PBT by 6.4%. This cautiously assumes a slightly weaker Christmas trading performance compared with the prior year, due to the ongoing shift to online shopping affecting footfall. Our like-for-like sales growth assumptions are 3.3% in H218 and 2.4% across FY18. The company remains on track to open c 100 net new stores this year. In FY19e we raise our like-for-like sales assumption by 50bp to 2%, and our PBT forecast by 10.8%. 

Based on revised forecasts, our blended valuation increases to 1,516p, representing a 10% premium to the current share price. This implies a FY19e P/E multiple of 20.9x, which does not appear stretched given the quality of earnings and dividend yield prospects.