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Greggs shares lose their allure

The high-street baker's shares have moved above their 12-month average rating, prompting a nervy downgrade from one City analyst
February 28, 2017

Brokerage Peel Hunt has declared that shares in high-street baker Greggs (GRG) look "fully valued", which, along with a conservative outlook statement from company management, prompted a 3 per cent drop in the share price on results day. Analysts admit Greggs' strategy is "spot on", but argue that the shares' 16 times forward earnings ratio is about right, in light of the current rate of earnings growth.

IC TIP: Hold at 982p

Last year, Greggs did well amid a competitive food-to-go market. Like-for-like sales across its company-managed stores rose 4.2 per cent, with the healthier 'Balanced Choice' range accounting for more than 10 per cent of sales. Greggs also added to its product range of hot food and drinks and has now refurbished 92 per cent of its store estate to better suit the on-the-go format. Now, the company has commenced its £100m investment in manufacturing and distribution.

The new financial year is also off to a good start with like-for-like sales up 2 per cent over the eight weeks ended 25 February.

Peel Hunt still expects pre-tax profits of £83.5m for the year ending December 2017 (£80.3m in 2016), giving EPS of 63.1p.

GREGGS (GRG)
ORD PRICE:982pMARKET VALUE:£993m
TOUCH:981-983p12-MONTH HIGH:1,210pLOW: 869p
DIVIDEND YIELD:3.2%PE RATIO:17
NET ASSET VALUE:262pNET CASH:£46m

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201273552.440.019.5
201376233.224.119.5
201480649.737.422.0
2015*83673.057.328.6
201689475.157.831.0
% change+7+3+1+8

Ex-div: 27 Apr

Payment: 26 May

*Year to 2 Jan 2016