Greggs — Looking forward

Greggs (LSE: GRG)

Last close As at 18/04/2024

GBP27.78

46.00 (1.68%)

Market capitalisation

GBP2,841m

More on this equity

Research: Consumer

Greggs — Looking forward

Greggs’ FY20 results were in line with expectations and highlight a year of two halves from a profit perspective. COVID-19 wrought the most damage in H120 before ‘better’ revenue and cost management restored the H220 operating margin back to normal levels (10.8%). Although current trading remains negative (-28.8% for the first 10 weeks of FY21), it is better than we and management expected and momentum is improving, leading us to increase our FY21 PBT forecast by c 5%. There is a very clear message that management is looking to the future by re-activating the store opening pipeline, accelerating multi-channel distribution and investing further in the supply chain, with more investment likely as management targets a presence in 3,000 locations, 44% more than today.

Russell Pointon

Written by

Russell Pointon

Director, Consumer

Consumer

Greggs

Looking forward

FY20 results

Retail

17 March 2021

Price

2,271p

Market cap

£2,300m

Net cash (£m) at 31 December 2020
(ex IFRS 16 liabilities)

36.8

Shares in issue

101.3m

Free float

100%

Code

GRG

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.5

34.6

55

Rel (local)

4.4

28.7

13.8

52-week high/low

2,278p

1,119p

Business description

With 2,078 shops, and eight manufacturing and distribution centres, Greggs is the leading UK ‘food-on-the-go’ retailer. It uses vertical integration to offer differentiated products at competitive prices.

Next events

Q121 trading update

18 May 2021

H121 results

3 August 2021

Q3 21 trading update

5 October 2021

Analysts

Russell Pointon

+44 (0)20 3077 5700

Sara Welford

+44 (0)20 3077 5700

Greggs is a research client of Edison Investment Research Limited

Greggs’ FY20 results were in line with expectations and highlight a year of two halves from a profit perspective. COVID-19 wrought the most damage in H120 before ‘better’ revenue and cost management restored the H220 operating margin back to normal levels (10.8%). Although current trading remains negative (-28.8% for the first 10 weeks of FY21), it is better than we and management expected and momentum is improving, leading us to increase our FY21 PBT forecast by c 5%. There is a very clear message that management is looking to the future by re-activating the store opening pipeline, accelerating multi-channel distribution and investing further in the supply chain, with more investment likely as management targets a presence in 3,000 locations, 44% more than today.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/19

1,167.9

114.2

89.7

11.9

25.3

2.1

12/20**

811.3

(12.9)

(12.1)

0.0

N/A

N/A

12/21e

1,053.7

65.0

52.1

20.0

43.6

0.9

12/22e

1,144.7

103.5

85.1

34.0

26.7

1.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **53-week accounting period.

FY20: H2 operating profit despite tough environment

FY20 revenue declined by 30.5%, due to a 36.2% decline in like-for-like sales growth leading to a clean operating loss of £6.2m and loss before tax of £12.9m. Following the weak first half (see our note of 4 August 2020), and despite a further year-on-year revenue decline of c 18% in H220, Greggs reported an operating profit of £55.3m (10.8% margin) due to a combination of higher gross margin (+110bps y-o-y to 65.3%) and cost control (opex -14% y-o-y), helped by government financial support. Consistent operating cash generation during H220 and capex savings (both relative to sales) restored the balance sheet to a net cash position of £36.8m at the year-end.

FY21: PBT upgraded by c 5%

The more encouraging current trading statement leads us to increase our FY21 clean PBT estimate by c 5% to £65.0m. We assume gradual revenue recovery through FY21 such that during Q421 like-for-like revenue is back to 90% of FY19 levels. Our new FY22 revenue estimate includes c 9% revenue growth, with similar contributions from new space and like-for-like growth (versus 9% l-f-l growth in FY19), leading to c 59% growth in clean PBT of £103.5m. With improving trading and cash flow we assume a higher dividend than previously (20p/share versus 15p).

Valuation: Sales multiple recovered

The share price has performed strongly as a recovery in trading has been anticipated. On our new forecasts, with FY22e revenue marginally below that of FY19, the EV/sales multiple is 2.0x, marginally below the previous highest multiple (2.1x) achieved in FY19, pre-COVID-19. A faster rate of recovery than we model and continued progress with the strategic growth plan could lead to further upside.

Exhibit 1: Financial summary

£m

2018

2019

2020

2021e

2022e

Year-end December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,029.3

1,167.9

811.3

1,053.7

1,144.7

Cost of Sales

(373.5)

(412.2)

(299.6)

(384.2)

(412.4)

Gross Profit

655.9

755.7

511.7

669.5

732.3

EBITDA

 

 

145.7

231.9

115.4

186.0

226.3

Operating Profit (before amort. and except.)

 

 

89.8

120.7

(6.2)

71.7

110.2

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

Exceptionals

(7.2)

(5.9)

(0.8)

0.0

0.0

Operating Profit

82.6

114.8

(7.0)

71.7

110.2

Net Interest

(0.0)

(6.5)

(6.7)

(6.7)

(6.7)

Profit Before Tax (norm)

 

 

89.8

114.2

(12.9)

65.0

103.5

Profit Before Tax (FRS 3)

 

 

82.6

108.3

(13.7)

65.0

103.5

Tax

(18.2)

(22.4)

0.7

(12.3)

(17.6)

Profit After Tax (norm)

71.6

91.8

(12.2)

52.6

85.9

Profit After Tax (FRS 3)

65.7

87.0

(13.0)

52.6

85.9

Average Number of Shares Outstanding (m)

100.7

100.8

101.0

101.0

101.0

EPS - normalised fully diluted (p)

 

 

70.3

89.7

(12.1)

52.1

85.1

EPS - (IFRS) (p)

 

 

65.3

86.3

(12.9)

52.1

85.1

Dividend per share (p)

35.7

11.9

0.0

20.0

34.0

Gross Margin (%)

63.7

64.7

63.1

63.5

64.0

EBITDA Margin (%)

14.2

19.9

14.2

17.7

19.8

Operating Margin (before GW and except.) (%)

8.7

10.3

(0.8)

6.8

9.6

BALANCE SHEET

Fixed Assets

 

 

347.5

646.5

631.0

641.6

670.4

Intangible Assets

16.9

16.8

15.6

14.9

14.3

Tangible Assets

330.5

353.7

345.3

356.6

386.0

Right-of-Use Assets

0.0

272.7

270.1

270.1

270.1

Other

0.2

3.3

0.0

0.0

0.0

Current Assets

 

 

140.6

142.3

98.7

160.8

201.0

Stocks

20.8

23.9

22.5

22.6

24.3

Debtors

31.6

27.1

39.4

28.9

31.4

Cash

88.2

91.3

36.8

109.3

145.4

Other

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(145.1)

(208.7)

(144.1)

(179.3)

(188.6)

Creditors

(136.4)

(154.1)

(91.1)

(126.3)

(135.6)

Leases

0.0

(48.8)

(48.6)

(48.6)

(48.6)

Short term borrowings

0.0

0.0

0.0

0.0

0.0

Other

(8.7)

(5.8)

(4.4)

(4.4)

(4.4)

Long Term Liabilities

 

 

(13.8)

(233.3)

(264.0)

(261.7)

(261.7)

Long term borrowings

0.0

0.0

0.0

0.0

0.0

Leases

0.0

(226.9)

(243.1)

(243.1)

(243.1)

Other long term liabilities

(13.8)

(6.4)

(20.9)

(18.6)

(18.6)

Net Assets

 

 

329.2

346.8

321.6

361.3

421.1

CASH FLOW

Operating Cash Flow

 

 

152.2

246.0

61.6

232.6

235.4

Net Interest

0.2

(6.3)

(5.9)

(6.3)

(6.2)

Tax

(16.1)

(20.3)

(10.7)

(12.3)

(17.6)

Capex

(64.9)

(87.7)

(59.8)

(73.0)

(93.0)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

Equity financing

5.3

4.9

3.7

3.7

3.7

Dividends

(33.1)

(72.1)

0.0

(20.2)

(34.4)

Borrowings

0.0

0.0

0.0

0.0

0.0

Other

(9.9)

(61.4)

(43.4)

(51.9)

(51.9)

Net Cash Flow

33.7

3.1

(54.5)

72.5

36.1

Opening cash

 

 

(54.5)

(20.8)

(17.7)

(72.2)

0.3

Other

0.0

0.0

0.0

0.0

0.0

Closing cash

 

 

(20.8)

(17.7)

(72.2)

0.3

36.4

Closing net debt/(cash)

 

 

(88.2)

(91.3)

(36.8)

(109.3)

(145.4)

Closing net debt/(cash) including leases

 

 

(88.2)

184.4

254.9

182.4

146.3

Source: Greggs accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Greggs and prepared and issued by Edison, in consideration of a fee payable by Greggs. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Greggs and prepared and issued by Edison, in consideration of a fee payable by Greggs. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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