ii view: investors still have the taste for Greggs

A growing vegan-friendly food and drink offering and growing store numbers. Buy, sell or hold?

Third-quarter trading update to 30 September

• Like-for-like sales up 3.5% compared to Q3 2019
• 68 net new shops opened year-to-date

Guidance: 

• Expects full-year outcome to be ahead of its previous expectations

ii round-up:

Greggs (LSE:GRG) was founded over 80 years ago by John Gregg to delivery fresh eggs and yeast to customers in Newcastle.

Today the bakery and food on the go chain operates just over 2,100 stores across the UK.

For a round-up of this latest trading update, please click here. 

ii view:

The Newcastle headquartered company began a transformation from bakery to food-on-the-go retailer back in 2013. Today, its products are predominantly made in centralised bakeries. Outlets are located from high streets to industrial parks. Digital technology is now central in its strategy, with a reward offer, click and collect, and home delivery provided by its partner Just Eat Takeaway.com NV (LSE:JET). 

For investors, management comments referencing both pressures on staffing and supply chains, and some disruption to the availability of labour, need to be remembered. So does its exposure to food inflation costs and energy prices. An estimated price to-net-asset value of 9.2 times compared to a three-year average of 5.2 times may also suggest that the shares are not obviously cheap. 

But Greggs' value proposition at a time of economic turbulence and uncertainty is unlikely to be forgotten by consumers. An improvement in like-for-like sales from the second quarter points to a recovery from the pandemic, while its growth ambitions remain evident as looks to open around 100 net openings during the current financial year. In all, while headwinds are increasing, this well-managed company's long-term expansion plans make sense.

Positives: 

• Value product offering
• Pursuing digital initiatives such as click & collect & home delivery 

Negatives:

• Rising cost headwinds
• Elevated price asset valuation

The average rating of stock market analysts:

Strong buy