Greggs is on a roll. The share price has delivered a resilient performance in recent years, in line with the bakery chain’s rapid expansion and the strong demand for its snacks.
Total sales for the past year rose by 19.6 per cent to £1.8 billion, surpassing stock market expectations. In its latest quarter, which included the key Christmas period, like-for-like sales increased by a bumper 9.4 per cent, helped by its seasonal, festive products.
The positive trading can be attributed to people who are struggling with the high cost of living looking for cheaper food. The fact that more people are going back to the office, especially in city centres, has also benefited Greggs and has helped to boost its share price.
Another reason for its success is its flexibility in opening and closing stores. The company said it had opened a record 220 stores last year, while relocating 42 and closing 33. It is a strategy that has allowed Greggs to move away from places with comparatively low customer numbers and into retail parks and travel hubs where there are more people.
The Newcastle-based bakery chain, often seen as an indicator of the health of the wider retail sector, also has been good at managing its supply chain and controlling inflationary pressures. It raised the prices of some of its products after surges in the cost of ingredients, energy and fuel after Russia’s invasion of Ukraine. As such, the company’s net cash at the end of the year amounted to £195 million, slightly higher than the previous year’s figure of £192 million.
Greggs looks well able to continue to progress. It has plans for 160 new outlets this year as it eyes opportunities for “significantly more than 3,000 shops” in the medium to long term, while hope persists that it could make a fresh attempt to launch overseas 15 years after it retreated from Belgium to concentrate on Britain.
The company seems to be on to a winner with its focus on hot foods and snacks such as pizza and chicken goujons, which is being helped along by both its extended opening hours and its speedy delivery initiatives with the likes of Uber Eats and Just Eat. Greggs said this had helped to attract new customers and was expected to lead to positive earnings growth. Its Tasty by Greggs cafés in Primark stores and “fine dining” Bistro Greggs at Fenwick, the department store in Newcastle, have boosted cash generation still further.
For now, the stock looks fairly priced, trading at about 19 times this year’s adjusted earnings. With profit expected to grow over the next couple of years, investors may want to consider taking a bite out of the pastry maker.
Although this year’s guidance is maintained, Shore Capital said it expects to nudge annual pre-tax profits a little higher, by about 2 per cent to 3 per cent. The broker estimates £211 million in profits for 2025 and £234 million for 2026.
What originally concerned this column still applies, however. And that is what will happen when discretionary spending improves and the cost of living struggles fade? Although Roisin Currie, Greggs’ chief executive, is adamant that “savvy” shopping behaviour will be cemented for the foreseeable future and that rising wages will “put more money into consumers’ pockets”, there no doubt will be a move back to some more upmarket rivals, including Pret a Manger, when spending levels improve. The rising popularity of healthy and artisanal bakery chains could make expansion more challenging, too.
Advice Buy
Why Good value and full of potential
Avon Protection
The tale of the Avon Protection bullet-proof vests that turned out to be only mostly bullet-proof may live long in the minds of investors appraising the listed business that otherwise makes helmets for the US military and gas masks and respiratory equipment for customers worldwide (Robert Lea writes).
The fiasco of Avon’s faulty body armour is told in the company’s share graph, with the stock price nearly quadrupling in the matter of a year to a high of more than £43 in the second half of 2020. Within another year, the company had lost 80 per cent of its value.
However, the technology failure was symptomatic of wider failings in the business and Avon’s management was moved on. For the past year, the Wiltshire-based company has been in turnaround mode under Jos Sclater, its new chief executive, whose recent bona fides include Ultra Electronics, Castrol Lubricants and GKN.
Its latest announcement is of a contract understood to be worth double-figure millions of euros to supply state-of-the-art, ten-years-in-development underwater breathing equipment to allow German naval divers to, among other things, clear mines on missions at 100 metres deep lasting four to six hours. The contract is strategically and financially valuable and may yet be the precursor to a far larger deal with the US navy. More importantly, it is a reminder that Avon has strong proprietary technology and sells to significant customers.
Avon’s stock has been pretty much flat at a time when so many other defence stocks have shot up like a Tomahawk missile during the conflicts of the past two years. Investors who want to hear the story will be reminded at a capital markets day early next month of Avon’s capability and what Sclater has done to shake up the company.
Avon is a business that has annual sales of about $250 million and it plans to nearly double margins to up to 16 per cent. If it can be forgiven for past failings, then it may be worth donning the tin hat once more.
Advice: Buy
Why? A turnaround situation in good markets with good product.
