Greggs PLC (LON: GRG)

Greggs PLC is an FTSE 250 index listed British food-on-the-go retailer that employs nearly 25,000 people and operates over 2,200 shops.

On 2 August 2022, Greggs expects to announce its interim results for H1 FY22.

Investment Rationale for Valuation – Speculative Buy at GBX 2,264.00

• Decent Outlook: Despite cost pressure, Greggs started FY22 well with a solid pipeline of new shop acquisitions ahead. Moreover, the Company has plans to extend digital channels, bolster supply chain to facilitate growth, develop estates through acquisitions.
• Financial Growth: During FY22, Greggs reported strong brand and financial position as there was a significant growth in top-line and bottom-line profitability. Subsequently, final dividend per share was 57 pence in FY21 against the nil dividend in FY20.
• Business Resilience: Although the ongoing cost pressure is more intense than anticipated, the investment in recent years shall grow the business rapidly once the economy recovers.
• Technical Indication: The MACD line has given a bullish crossover against the signal line, reflecting a positive price potential.

Key Risks

• Inflation Woes: Greggs has already given a heads up regarding increasing pressure, which can significantly impact its profit margins.
• Macro Risk: Weakening GDP, cost-of-living crunch, market slowdown, Covid-19 uncertainties and underlying structural changes in consumer behaviour can hamper demand prospects.

Trading Update (for the first 19 weeks of 2022, as of 16 May 2022)

• Top-line Growth: In the first 19 weeks of 2022, Greggs recorded a 27.4% like-for-like sales growth, and thus, expectations for full-year remained unchanged. The total sales in the 19 weeks to 14 May 2022 stood at £495 million (same period in FY21: £378 million).
• Operational Achievements: It opened 49 new shops in the first 19 weeks of 2022, while pipeline remained strong.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

*Peers: boohoo group plc, Hotel Chocolat Group PLC, and InterContinental Hotels Group PLC.

*All selected peers are LSE-listed Companies from the Consumer Staples sector.

Conclusion

Based on the recent investments, decent fundamentals, positive technical indication, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Greggs PLC at the closing market price of GBX 2,264.00 (as of 31 May 2022) with lower double-digit upside potential based on 22.58x Price/NTM Earnings (approx.) on FY22E Earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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