The fast food business has been a big market in recent years and it shows no sign of slowing down. Everyone is looking for quick, alternative options when it comes to food. They are not always healthy and nutritional choices out there but to each their own.
Greggs (LSE:GRG) is a major player in this realm and is the largest bakery chain in the UK. The convenience food chain specialises in savoury products such as bakes, sausage rolls, and sandwiches. With approximately 2,000 outlets across the country, Greggs’ presence on the high street is a prominent one.
In the face of the coronavirus there has been a drop off in share price. The last month alone has seen a 40% decrease. CEO Roger Whiteside has released a statement addressing the impact of the virus on the business and measures moving forward. A primary focus has been on hygiene and handwashing but the closure of seating areas was also announced.
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Performance
Although the past month has been tough for all, and the short-term forecast may not be the most attractive, I believe there is an opportunity.
Results posted for the full year earlier this month showed great promise. Greggs made record profits in 2019, the year it launched the controversial but popular vegan sausage roll.
It did say that storms and flooding had slowed sales since the turn of this year. Flooding caused the temporary closure of its bakery and distribution centre in South Wales, as well as 40 Welsh stores. Despite these natural causes, sales at stores open more than a year were up 7.5% in the nine weeks to February 2020.
This update was part of the year-end results, which told of a 27% rise in pre-tax profits. Like-for-like sales grew by a record 9.2%. Last year, it paid out £35.5m to shareholders via a special dividend. A very encouraging takeaway.
Crunching the numbers
Revenue and profit has increased year on year in the last three years, which is a sign of a business continuing to grow and maintain customer confidence. Dividend per share has also increased in the previous year and this year.
Share price in the previous year, prior to the markets crashing, saw an increase of nearly 30%. The current price-to-earnings ratio sits at just over 16, which is healthy.
It is also worth noting that Greggs possesses good leadership in my opinion. Roger Whiteside has documented success in the food-to-go sector. Previous experience includes stints at Marks & Spencer and Ocado. The previous seven years at Greggs have also been fruitful.
What I would do now
Greggs’ progress has been somewhat halted by current events, but I do believe that shares picked up at the current price are a bargain.
The positive year-end results, strong management, and brave product innovation are my key takeaways. These aspects excite me from an investment perspective. I would note that there will be short-term pain with the coronavirus currently hampering businesses everywhere but this falls into my buy-and-hold category of investments.
