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Greggs first-half results were a sweet and sour offering. On the sweet side, the bakery chain - which reported modest growth last year - definitely showed signs of recovery. Sales accelerated thanks to an improved footfall in the high street which reflected an increased number of shops open on Sundays and longer opening hours in "appropriate" locations.
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The Newcastle-based company also benefited from generally favourable weather conditions, even if sales growth slowed with the heavy rainfall in June. And when most retailers seize on the downpours to justify poor performances, it is worth noting that like-for-like sales actually rose by 4.1 per cent in the five weeks since the period end despite shop closures in flooded areas. Operating profits also bounced back in the first half and, notably, Greggs delivered substantial cost savings with the restructuring of the Bakers Oven brand.
On the sour side, Greggs faces inflationary pressures - particularly in flour, dairy products and fats - as well as higher overheads. Over the past few years, the sausage roll maker has suffered a tougher competitive environment and is currently revamping its range, introducing healthier products and upgrading its stores. And as part of a major strategic review, Greggs is strengthening its senior management.
Broker Citigroup is maintaining its full-year EPS forecasts at 289.8p (252p in 2006)
Greggs (GRG) |
||||
|---|---|---|---|---|
| ORD PRICE: | 5,075p | MARKET VALUE: | £558m | |
| TOUCH: | 5064-5098p | 12-MONTH HIGH: | 5,362p | LOW: 3587p |
| DIVIDEND YIELD: | 2.4% | PE RATIO: | 19 | |
| NET ASSET VALUE: | 1327p | NET CASH: | £26.3m | |
| Half-year to 16 Jun |
Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Net dividend per share (p) |
|---|---|---|---|---|
| 2006 | 243 | 12.5 | 72 | 38.0 |
| 2007 | 255 | 16.7 | 105 | 46.0 |
| % change | +5 | +34 | +45 | +21 |
Greggs remains one of the most defensive retailers, able to whet investors' appetite with a comfortable dividend and share buyback programme. However, the shares trade on forward PE ratio of 17.6 which is hardly appetising. Fairly priced.
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
