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Greggs going strong

Talk of the recent wheat price spike overshadowed steady results from value baker Greggs and further progress on plans to open 600 new stores over the next five years.

Chief executive Ken McMeikan played down the impact of the Russian-drought induced price surge, pointing out that the increase was far less severe than the previous crop-shock in 2007. He said that with world grain stocks at a much higher level now, he expected the price to pull back from the current level of £158 a tonne, and that if it did have to push through any price increases, they would be "in pennies".

And while Mr McMeikan was conscious of lowly consumer confidence and pressure on disposable income, he said the business was on track to open a net 50-60 stores this year and refurbish a further 120. He pointed to a particularly strong performance from the new concept stores being rolled-out in London, which are delivering double-digit sales increases, in comparison to overall like-for-like sales growth of 0.7 per cent. Capital expenditure will rise from £30m last year to £45-50m in 2010, but strong cashflows meant the dividend was increased to a record level.

Broker Shore Capital expects full-year pre-tax profits of £51.6m and EPS of 36.4p (2009: £48.8m/ 34.1p).

GREGGS (GRG)

ORD PRICE:419pMARKET VALUE:£432m
TOUCH:419-420p12-MONTH HIGH:506pLOW: 384p
DIVIDEND YIELD:4.0%PE RATIO:12
NET ASSET VALUE:154pNET DEBT:£24.6m

Half-year to 3 JulTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200931216.511.35.20
201032118.612.95.50
% change+3+12+14+6

Ex-div: 1 Sep

Payment: 1 Oct

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More analysis of company results

IC View

Low levels of food inflation have held back Greggs' top-line growth, but with its expansion plans well on track the shares are attractively priced on a forecast PE ratio of 12. Good value.

Last IC view: Good value, 470p, 19 March 2010

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