Interactive Investor

Greggs: are the baker’s shares on the rise?

16th March 2021 10:16

Richard Hunter from interactive investor

The high street stalwart is weathering the pandemic, but nonetheless makes a £14 million pre-tax loss.

The pandemic clearly left its mark on Greggs (LSE:GRG), the bakers, but its shares nonetheless remain on a roll.

The various lockdowns tested the company’s resilience to the full, and the pre-tax loss for the year of £14 million compares with a previous profit of £108 million.

However, broken down into two distinct halves, the direction of travel has clearly improved. A first-half loss of £65 million was largely offset by a second-half profit of £51 million.

Greggs was forced into several adjustments, accessing government schemes, scrapping the dividend and reducing the workforce where necessary. At the same time, capital expenditure was all but cancelled at the height of the first pandemic.

Also, the partnerships with the likes of Iceland and Just Eat (LSE:JET) provided some solace to a battered revenue line which still suffered a decline of 31% to £811 million.

Delivery sales are now picking up some of the slack, accounting for 9.6% of the total. This represents a sharp increase from a level of around 5.5% towards the end of the year.

Despite the cash burn the company ended the year with net cash of £37 million and access to a further £100 million of liquidity if required, which reinforced its previous strategy to keep a buffer in place should a slump in sales ever materialise.

During the final quarter of the year, sales represented 81% of 2019 levels, which is some achievement given the extraordinary backdrop. With customer accessibility in mind, particularly by car, Greggs will continue its store expansion programme by opening 100 shops this year, with an eventual target of 3,000.

Current trading remains under pressure, but is also on an improving trajectory. A like-for-like sales decline of 36% last year is now down to 29% and, with the easing of restrictions in sight, the company may well benefit from the consumer being let off the leash in the coming months.

The share price has stood up to the challenge, having risen 33% over the last year, as compared to a gain of 50% for the wider FTSE 250 index.

Recovery has been most pronounced since the initial announcement of a vaccine in November, since when the shares have rallied by 65%. With the worst hopefully over and with a lean model to move into the next phase, Greggs seems well positioned, with the market consensus of the shares as a strong ‘buy’ reflecting a potentially brighter future.

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