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.
Companies: Greggs Plc
COVID-19 will have an uncertain but important impact on Greggs' profitability in FY20. The profit and cash flow impact of lost sales will be mitigated by internal initiatives and government support on operating costs (rates and employees). The strong balance sheet means that Greggs is well placed for tougher times. Our forecasts are now under review and we are planning to publish a note to update them shortly.
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 finished 2019 with accelerating revenue growth. It continues to benefit from increasing customer growth as the brand strengthens and it takes share in the ‘food-on-the-go’ market. With increased cost pressures, management remains confident of mitigating these through ongoing business efficiencies and select price increases, where possible, and some one-off benefits. Our forecasts, which are at the high end of consensus, are broadly unchanged. Our DCF-based valuation is 2,096p.
Greggs’ trading update for the first six weeks of Q419 highlights an improvement in sales growth. Like-for-like (l-f-l) sales growth of 8.3% follows 7.4% in Q319 and is against a tougher comparative, allaying fears about Greggs’ sales momentum. We upgrade our l-f-l sales forecast for FY19 by 70bp to 8.6% growth, which feeds through to PBT forecasts increasing by 4.6% in FY19 and 2.8% in FY20. Our DCF-based valuation increases to 2,091p.
Greggs’ trading continues to be impressive, with better-than-expected like-for-like revenue growth in Q319 of 7.4% (against tougher comparatives) offset by lower-than-expected new space growth. In aggregate, trading is in line with expectations, therefore our forecasts and valuation are unchanged.
Greggs’ interim results highlighted that the consumer is responding well to the company’s transition to a leading food-on-the-go retailer. This has led to record revenue growth and a step change in gross margin, as well as enabling further investment to fund future growth initiatives, while funding a special dividend as expected. Our forecasts are broadly unchanged following four upgrades in six months.
An unscheduled trading update confirming exceptional 11.1% like-for-like (l-f-l) sales growth in the first 19 weeks of FY19, and a fourth earnings upgrade in six months is testament to Greggs’ outstanding progress on the repositioning of the brand as a leading food-on-the go-format. We increase our FY19 and FY20 underlying PBT forecasts by 9%. The company is highly cash generative and likely to distribute part of the substantial cash balance (FY19e: £102.6m) with the H119 dividend.
Greggs’ substantial progress with the brand transformation, backed by savvy use of social media, helped to deliver robust FY18 results, in spite of weather extremes, and an outstanding start to FY19. Consequently we have upgraded our forecasts three times since late November. The company is highly cash generative and likely to distribute part of the substantial cash balance (FY19e: £92.9m) with the H119 dividend.
After only seven weeks, Greggs’ vegan sausage roll has already led us to an upgrade, our third in two months. With its smart approach to social media, the company is succeeding in disrupting out-of-date perceptions, which appears to be bringing new customers into the stores. While multiples are optically high, we believe there may be further upgrade potential.
Greggs, the leading food-on-the-go retailer, has continued an impressive upwards trend in like-for-like (lfl) owned-store sales growth across Q4, and in the final five weeks of FY18e. The company is successfully drawing new customers into its stores with strategic product launches and efforts to reduce queues and improve product availability. We upgrade both our FY18 and FY19 PBT forecasts for the second time in six weeks, by 3%.
An unscheduled trading upgrade confirms impressive stronger than anticipated sales growth in October and November, on the back of a robust Q3 and tough prior year comparatives. Cautiously factoring in slightly weaker Christmas trading as shoppers increasingly favour buying online, we raise our FY18e PBT by 6.4%. Our valuation increases to 1,516p.
Greggs’ sales growth has accelerated through each quarter, in defiance of the summer 2018 heatwave conditions that turned many retailers’ performances on their heads. Greggs has passed the scorch test, thanks to the change strategy that the brand has quietly achieved: a change in its locations, its value menus, its customers and its trading dayparts. This result is significant and should help challenge out-of-date assumptions about Greggs. We retain our 1,360p valuation.
Greggs’ interim results, against a backdrop of extreme weather conditions, reinforce progress with the strategic transformation of the brand into a leading ‘food-on-the-go’ format. Innovative new product ranges, a reduced dependence on high street footfall and a major overhaul of the supply chain are creating a solid platform for the next stage of the journey. We forecast strong cash generation and a return to earnings growth in 2019.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Greggs Plc.
We currently have 62 research reports from 4