ii view: why Greggs shares just made a record high

The high street pasty maker has seen a boom in sales following Covid rule changes. We assess prospects. 

Trading update from the start of the year to 8 May

ii round-up:

Food-on-the-go chain Greggs (LSE:GRG) today lifted its full-year profit expectation following a strong recovery in sales after the easing of Covid-19 restrictions back on the 12 April.

The Newcastle headquartered company, which operates over 2,100 outlets across the UK, now hopes that current full-year pre-tax profit could be back around the £108 million made in 2019 compared to 2020’s pandemic loss of £14 million. 

Gregg shares rose by more than 11% in UK trading, providing for an almost doubling of the share price since late October, just prior to the announcement of vaccine development success. Shares for supermarket operators Sainsbury's (LSE:SBRY) and Morrison (LSE:MRW) are up by 26% and 11% respectively over the same time. 

Like-for-like sales over the eight-week period to the 8 May, and including the recent easing in Covid restrictions, declined by 3.9% compared with the same pre-pandemic period back in 2019. 

Sales on the same basis, and covering the 10 weeks to the 13 March, a period before the easing of Covid restrictions, fell by 23.3% compared to the same period in 2019. 

Total sales in the 18 weeks to 8 May came in at £352 million, up from the pandemic hit 2020’s £280 million, although still down from the £373 million achieved in the pre-pandemic 2019 period.

Delivery sales accounted for 8.2% of its managed shop sales over the most recent eight weeks of trading, with delivery now available from 800 of its shops. A partnership with delivery company Just Eat was previously formed. 

ii view:

Greggs was founded over 70 years ago by John Gregg to deliver fresh eggs and yeast to customers in Newcastle. A transformation from bakery to food-on-the-go began in 2013. Products are now made in centralised bakeries. Its outlets are located across a variety of locations including high streets and industrial parks. It previously launched the ‘Greggs Pledge,' responsible growth programme. Digital technology is central, with a rewards offer, click and collect, and home delivery provided by its partner Just Eat. 

For investors, management comments highlighting ‘unusual’ current trading, and the difficulty of predicting how sales will develop under the ongoing pandemic, should not be ignored. An estimated price to Net Asset Value (NAV) of 7.4 times, compared to a three-year average of 5.2 times, may also suggest that the shares are not obviously cheap, while the dividend remains suspended. 

But Greggs' value proposition at a time of economic turbulence and uncertainty is unlikely to be overlooked by consumers. Digital related sales are being pushed and a target to expand its store portfolio to 3,000 outlets held. In all, this well-managed company looks to remain deserving of long-term investor support. 

Positives: 

• Sales recovery following recent easing of Covid-19 restrictions
• Pursuing digital initiatives such as click & collect & home delivery 

Negatives:

• Ongoing pandemic clouded outlook
• Dividend payment suspended

The average rating of stock market analysts:

Buy