Greggs investing in delivery capabilities

The beloved baker Greggs (GRG) hasn’t lost many of its loyal customers during the Covid-19 lockdowns. Its sales in Q2 2021 were up compared to the same period in 2019 and it appears that many of its visitors are making up for lost time with sales per customer increasing. Sensibly, the company isn’t assuming that office levels will return to 2019 levels anytime soon and is focusing its investment on car-accessible locations and online deliveries.

Two-year, like-for-like sales were down 9.2 per cent because of the impact of lockdowns in Q1. In Q2, when restrictions were eased and footfall increased, there was 2.8 per cent (two-year) like-for-like sales growth. Greggs will be pleased that this was mainly driven by higher average transaction values and increase in delivery sales, this means there should be more expansion on the horizon as companies urge employees back to the office.

Although there will probably be an increase in footfall in H2, Greggs isn’t banking on the return to conventional office work patterns. It expects 100 net shop openings by the end of the year and all new shops will support collection of digital orders. This will enable it to utilise its partnership with Just Eat and increase delivery sales, which contributed 8.5 per cent of company-managed shop sales in H1 2021.

The broker consensus is that cash flow per share will be 170p for the full-year 2021, significantly ahead of the 114p in 2019, according to data from FactSet.

Keeping up with shifting trends to healthy eating is a concern, but the adoption of vegan products shows Greggs' flexibility and given expected timeframes, there is breathing space to create additional new product lines. Lesser companies might have buckled under the pressure of the pandemic, so a forward rating of 16 times forecast earnings isn't prohibitive. Buy.

Last IC View: Buy, 2,306p, 16 Mar 2021