Greggs shares punch past £12 on more strong growth

A seventh quarter of unbroken growth at Greggs saw shares in the high street chain leap by more than 60p to break past £12 each as sales in the first half touched close to £400m.

Consumer demand for its expanding breakfast range, meal deals and lower calorie sandwiches pushed revenues up 6.4% in the six months to 4 July to £398m, with like-for-like figures rising 5.9% compared with a 3.2% increase a year ago.

Pre-tax profits at the baker and food-to-go specialist also soared by almost £9m in the period, from £16.9m in 2014 to £25.6m, helped by a £2.4m year-on-year cost reduction thanks to the restructuring of the in-store bakeries and support operations in 2014.

CEO Roger Whiteside, the architect of Greggs turnaround, said the strong first half with good growth in sales reflected improvements in the products and was a reaction to the shop investment programme.

“Our offer of great tasting food-on-the-go is being well received by the consumer in market conditions that have remained favourable. In particular we have seen significant growth in breakfast sales as well as from the extension of our ‘Balanced Choice’ range of sandwiches and flatbreads.

“With the shop refurbishment programme continuing to progress well and new additions to the product range including pizza slices, we are confident of delivering a year of good growth slightly ahead of our previous expectations.”

Greggs added customers were visiting its 1,664 outlets more often and increasing their basket size when they did thanks to its increase range of food-on-the-go and the investment in its estate.

The chain now offers porridge, fruit pots and Danish pastry, as well as the traditional bacon baps, in its breakfast meal deal – with prices held at £2 with a hot drink for the past three years – which is the fastest growing part of the business.

Opening hours have been extended to take advantage of this demand, with three-quarters of the shops now open by 7am and more than two-thirds open on Sundays.

Greggs returned to net shop growth in the half, opening 44 new sites and closing just 30, with most of the new stores coming outside of the high street on business parks and service stations. The listed baker expects its estate to increase by a net 20 to 30 shops over the full year.

It also completed 118 shop refurbishments to the ‘bakery food-on-the-go’ offer which has been the impetus behind the turnaround in fortunes at the company.

Greggs’ share price surged once again on the back of the results when the London Stock Market opened this morning. The stock was up 5.2% at 1,246p, adding another £60m to its market cap (up to £1.26bn) and putting the stock up a mammoth 70% since the start of 2015. The price has softened a little since and is, at the time of writing, trading 3.7% higher than yesterday’s close at 1,228p.

“In the second half we will come up against progressively stronger sales comparatives,” Whiteside added. “That said we have a strong pipeline of product initiatives, and market conditions are expected to remain favourable with ingredient cost deflation expected to continue for the balance of the year.”

Analysts at Shore Capital upgraded their pre-tax profit expectation for the year following the “excellent” first-half performance of Greggs. The broker now forecast the bottom line to come in at £70.5m, up modestly from £68.4m.

Clive Black of ShoreCap added: “We cannot deny that the stock now has fulsome valuations, which may deflect value investors. However, the valuation multiples are thoroughly merited with the now sustained performance of the group coming through.

“Self-improvement continues and whilst comparisons strengthen, the group has the fuel of net new stores coming through and a wide range of potential additional growth opportunities to explore to our minds, e.g. penetrating Ireland.”