Investors underestimate Greggs at their peril. So, too, it turns out, do columnists. Tempus failed to appreciate the resilience of the bakery chain when it said in December that the shares should be avoided. Since the last visit, Greggs has delivered three trading updates, two of them profit upgrades and each outlining a strong and successive increase in underlying as well as top-line sales. It has reported a healthy rise in annual profits, lifted the dividend by more than 10 per cent and promised a special payout at the half-year results next month. The shares have gone up by 60 per cent since the previous recommendation. Whoops.
Greggs was founded as an eggs and yeast delivery operation in Newcastle by John Gregg in 1951, opening its first shop in Gosforth in 1951. It has expanded, in part through acquisition, to become Britain’s biggest bakery chain, with 1,953 stores at the end of last year, increasing by mid-May to 1,969. Indeed, Greggs has plans to increase the size of its estate over the longer term to 2,500 shops. That’s some ambition in the present retail climate.
While strictly speaking Greggs is a high street retailer, it has responded to the changing ways that consumers like to buy their grub, including online ordering and food on the go. Importantly, it has been shutting shops in underperforming high street locations and reopening in busier and more convenient places, such as bus and rail stations and closer to town and city workplaces.
The introduction of the Greggs vegan sausage roll may have been the cause of much amusement, but it does underscore how the retailer has diversified its food offering, reducing its historical reliance on bacon and egg sarnies and baked pasties. Its breakfast range features pains au chocolat and almond croissants and there are plenty of more balanced options throughout the day for the healthier eater, from mango and granola yoghurt to feta and tomato pasta. Intelligently, the menu is adjusted with the seasons.
All of which has helped Greggs to perform not merely resiliently but actually very well, despite the background pressures of consumer confidence and rising labour and ingredients costs.
What originally concerned this column still applies. Trading for a company such as Greggs can be highly dependent on the weather, and in fact part of the reason that early trading figures for this year have been so strong is that the appalling rain and wind this time last year made sales relatively weak.
Shareholders should not lose sight of last May, when Greggs took the market by surprise and warned about profits after the weather had been so bad that some shops were unable to open. And despite the diversity, the plan remains for half the bakery estate to be situated on the high street, where there are indications — recent retail sales figures, for example — that trading will get worse, not better.
Nevertheless, it’s striking that at its most recent update, in mid-May, Greggs said that even though the comparatives this time become stronger, it still expected a material increase over the full year in both sales and profits. Part of this is to do with strong cost controls, but the effect of the shift in where the stores are located is coming through.
Can Greggs continue like this? Well, the analysts who cover it are forecasting steady increases in revenues, profits and dividends over at least the next three years. Revamping the mix of stores has a long way to run and is likely to help to improve earnings. The shares, up 18p, or 0.8 per cent, at £22.34 last night, trade at 23.7 times Shore Capital’s forecast earnings for a yield of 4.6 per cent. That has to be a “buy”.
ADVICE Buy
WHY Remarkable sales figures that, with the stores programme far from complete, should continue
James Fisher James Fisher seems to have taken the departure of its long-standing chief executive in its stride — and so, apparently, have its shareholders.
The marine services company told the stock market in early December that Nick Henry, 58, would be leaving in 12 months’ time at the latest, after a 16-year career with the business, most of them in the top job. Profits and shares at James Fisher, have continued to perform in the meantime, albeit in the case of the latter a little erratically, while the search for a successor for Mr Henry continues.
James Fisher was founded in 1847 in Barrow-in-Furness by a businessman of the same name as an operator of shipping fleets. Listed since 1996, it boasts a market value of £1 billion and a position in the FTSE 250, employing 2,900 people working in 19 countries.
This column has highlighted the diversity of the group’s activities across its four operating divisions: marine support, specialist technical, offshore oil and tankships. At a high level, it provides services to companies in the oil and gas, defence, marine, nuclear and renewable energy sectors. More closely, it is a niche operator and tends to be No 1 or close to it in each of its chosen markets, such as transferring oil between ships and providing moorings for tankers; working on oilrigs below sea level; and handling contaminated nuclear waste as part of the decommissioning process. All four of its divisions improved revenues and profits last year.
James Fisher’s shares, down 78p, or 3.9 per cent, at £19.20 yesterday, have been solid over the long term but do have a tendency to bump about a bit, mainly because trading is very thin — in part, thanks to a 25 per cent stake held by a charitable trust. Trading at 22.5 times Jefferies’ forecast earnings, the stock is not expensive. Last time — and this time too — this column has been deterred a little by the relative lightness of the yield, which remains 1.6 per cent.
This is a very high-quality business with its diversity, engineering expertise and intelligent acquisitions all speaking in its favour and the shares definitely merit a long-term hold.
ADVICE Long-term hold
WHY Only relatively low yield prevents it from being a buy
