Retail sector latest: Greggs, Ted Baker and an 11% dividend yield
9th January 2019 12:42
Another day, another batch of retailers issuing results, and the good news keeps coming. Graeme Evans looks at prospects and target prices for this lot.
Greggs (LSE:GRG), Ted Baker (LSE:TED) and Shoe Zone (LSE:SHOE) further enhanced their reputations today as the trio used post-Christmas trading updates to remind investors that not all retail stocks are worth shunning.
Shares in high street baker Greggs are now up a stunning 46% since early October, while Ted Baker surged more than 12% to put back losses seen since the harassment allegations against founder and chief executive Ray Kelvin.
Shoe Zone got the biggest cheer from investors as it accompanied record full-year profits with a return of £4 million in surplus cash through a special dividend of 8p a share. The final dividend was also 8p, a rise of 17.6% on a year earlier.
The value footwear retailer, which trades from just under 500 stores, was rightly rewarded with an 11% rise in its share price to 200p - the highest level since the summer of 2016.
That's quite an achievement in the current conditions, with Shoe Zone one of only a handful of retailers to be trading ahead of market expectations.
The company also impressed finnCap analyst Peter Smedley with its strategic growth ambitions, including its plan for 45 Big Box stores in order to target out-of-town retail and a more affluent customer base.
He said:
"This is a significant moment for the SHOE investment case, with SHOE entering into a distinctive new phase of growth which, in turn, should have important long-term implications for sentiment, forecasts and valuation."
Smedley raised his target price to 230p to reflect the opportunity and "eye-catching" 11% dividend yield, including the special due to be paid in March.
The company has returned surplus cash in this way in three out of four annual results since its IPO in 2014. Despite the ordinary dividend yield of around 6.5%, the AIM-listed company still trades below the clothing and footwear average with a 2019 price/earnings (PE) multiple of 10.2x.
Greggs, meanwhile, can do no wrong at the moment. Its new vegan-friendly sausage roll generated plenty of free publicity for the brand, while there’s been no let-up in the pace of trading since its last update in November.
Like-for-like sales were up 5.2% in the fourth quarter, leading to growth of 2.9% across the 2018 financial period. Chief executive Roger Whiteside called it a very strong finish to the year as Greggs continues to benefit from having more of its 1,900-strong estate near travel locations or places of work.
Source: TradingView (*) Past performance is not a guide to future performance
With Greggs now forecasting annual profits above £88 million rather than the £86 million indicated in November, the shares surged to a new record high at 1,480p. They were as low as 939p in the wake of the Beast from the East disruption.
UBS analyst Heidi Richardson is also positive about the outlook for this year, having upped her like-for-like growth forecasts from 2.8% to 3%. She also raised the bank's earnings forecast to £95 million and her price target from 1,400p to 1,500p. Based on UBS estimates, Greggs trades on a forecast PE multiple of 18.7x.
Richardson added:
"We believe that this result highlights the current momentum in the Greggs business, which looks to be taking market share with growth driven by a healthy mix of footfall and basket size growth."
In contrast, Ted Baker shares have been punished in recent weeks as uncertainty over retail conditions has added to its recent high-profile difficulties.
The shares have fallen 44% in the past 12 months, despite consensus forecasts holding up well against its retail peers. House broker Liberum also notes that the forward PE multiple of 11.8x is Ted Baker's lowest rating for nearly 10 years.
Source: TradingView (*) Past performance is not a guide to future performance
Encouraged by today's "excellent" Christmas trading performance, Liberum said the update raised questions as to why the shares have de-rated by so much.
Ted Baker said retail sales rose 12.2% in the five-week period to 5 January, with gross margins in line with expectations. Shares jumped to 1,800p, leaving the stock near where it was prior to the harassment allegations in early December.
Liberum, which has a 3,100p target price, said:
"The group's flexible retail model and strong proposition clearly drove strong traffic online as well as footfall dynamics over this period."
*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.
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