Greggs shares reward faithful with record high
27th November 2018 14:26
by Graeme Evans from interactive investor
Investors have no reason to get snobby about Greggs the baker after its recent share price performance. Graeme Evans explains this healthy rally.
A rollercoaster year for Greggs is ending on a high and fattening investors who have seen shares in the FTSE 250 bakery chain surge 40% since early October.
This includes a 14% rise today as Greggs reported a 4.5% jump in like-for-like sales for the past eight weeks, defying fears that Brexit worries might prompt shoppers and office workers to cut back on sausage rolls and sweet treats.
It's also further evidence that CEO Roger Whiteside has Greggs in good shape as he steers the focus of the company's 1,900-strong estate away from the high street towards travel locations, drive-thrus or near to places of work.
He's also been working to improve investment in the supply chain and to ensure that queues are reduced at busy times. This appears to have paid off, with strong trading in October and November meaning that profits will be better than City forecasts at not less than £86 million for 2018. The company posted an underlying surplus of £81.8 million the previous year.
Today's latest share price jump also means that shares are now back where they started the year, having been rocked in May by a profits warning triggered by Beast from the East disruption.
The stock surged from 400p five years ago to touch 1,400p at the end of 2017, only to fall back to 939p by the middle of July, sparking fears in some quarters that they could unwind all the earlier gains.
Source: TradingView (*) Past performance is not a guide to future performance
Those fears have been firmly allayed by recent trading, prompting some analysts to ask whether the City has fully taken on board the recent transformation of the business.
While shares have been trading on a 15x price/earnings multiple for 2019, this has been at a significant discount to its peer group and much lower than the valuation at which Costa was recently bought by Coca-Cola.
Analysts at Edison argue that Greggs' trading should challenge some out of date assumptions about the company.
They noted that more food-on-the-go locations were attracting new customers such as motorists, while the brand has successfully expanded its reach in other parts of the day such as breakfast and late afternoon.
The launch of healthier ranges including Mexican bean wraps or low-calorie soups has also helped broaden the appeal of the chain.
*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.
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