Pastygate serves up Greggs investment quandary

Monday, Apr 23 2012 by
6
Pastygate serves up Greggs investment quandary

They say that there is no such thing as bad PR and bakery group Greggs (LON:GRG) has wasted no time in trying to turn the Treasury’s plans to add 20% VAT to warm pies, pasties and sausage rolls to its own advantage. While news of the tax surprise in March inevitably dented shares in the £520 million market cap company, there are still reasons to be cheerful, and no shortage of column inches to promote its products either. 

What’s the story? 

With a 1,500 strong chain of stores around the country, Greggs is a familiar name on Britain’s High Streets. While the company has won praise for its relentless growth in conditions that have caused havoc elsewhere in retail, the last thing it needed was a new tax on its main product lines. Helpfully, a number of politicians, press and public weren’t impressed either – triggering the start of a 'Save Our Savouries' campaign backed by, among others, The Sun. Greggs chief executive Ken McMeikan may not have guessed at the start of the year that he’d be posing for photocalls with Sun models and angry customers but, hey, it’s all in a day’s work for the boss of a FTSE 250 company. 

What’s the bull case? 

March’s Budget news instantly slashed 30p from Greggs’ share price and sucked the wind from the sails of a robust set of full year figures announced a week earlier. Among the highlights there, revenues were up 5.8% to £701 million and pre-tax profits were up a touch at £53.1 million. For dividend hunters, the point of interest was a 6% increase in the full year payout to 19.3p – the 27th consecutive rise in dividends since the company floated in 1984 – which is well covered at more than 2x. 

On the financials, Greggs’ forward P/E of 12.2 is slightly higher than the industry median 9.7, revenues and net profits have grown consistently over five years and the company appears keen to keep opening new stores (84 last year, 90 this year). Return on assets increased for the fourth year to 15% and its operating margin improved from 7.9% to 8.6%. However, in some respects those profitability indicators flatter the company, because… 

What to watch? 

…like many retailers, Greggs pays for the majority of its shops under…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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Greggs plc is a United Kingdom-based bakery food on-the-go retailer. The Company owns approximately 1,650 shops, nine regional bakeries and two distribution centers. It has 45 franchised shops operating in travel and other convenience locations. The Company is engaged in offering fresh bakery goods, sandwiches and drinks in its shops. The Company's products include pastries and bakes, sandwiches, breakfast, sweets, pastas, salads, soups, bread, platters, drinks and snacks. The Company offers a sub-brand of Balanced Choice products that have fewer than 400 calories. The Company offers a range of impulse packs, such as mini doughnut and mini yum-yum packs. The Company also provides frozen bakery products to its wholesale customers. more »

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1048p
Change
-2.1%
Mkt Cap (£m)
1,082
P/E (fwd)
17.9
Yield (fwd)
2.9

JD Sports Fashion Plc is a United Kingdom-based is a multichannel retailer of sports fashion and outdoor brands in the United Kingdom and Europe. The principal activity of the Company is the retail of branded sports fashion wear and outdoor clothing and equipment. The Company operates through the Sports Fashion and outdoor segment. The Company has around 800 stores across a number of retail fascias. more »

LSE Price
1258p
Change
0.6%
Mkt Cap (£m)
2,435
P/E (fwd)
18.6
Yield (fwd)
0.7

J Sainsbury plc is a United Kingdom-based company, engaged in supermarkets and convenience stores, and an online grocery and general merchandise operation. The Company also has two property joint ventures with Land Securities Group Plc and The British Land Company Plc. Sainsbury’s Bank provides a range of banking and insurance products. As of March 2013, J Sainsbury plc consists of a chain of 592 supermarkets and 611 convenience stores. It provides a selection of movies, music, books, games and other entertainment products through Sainsbury's Entertainment. more »

LSE Price
268.4p
Change
-6.1%
Mkt Cap (£m)
5,500
P/E (fwd)
13.5
Yield (fwd)
3.6
96



  Is Greggs fundamentally strong or weak? Find out More »


1 Comment on this Article show/hide all

Isaac 23rd Apr '12 1 of 1
3

Ben Hobson - Just wanted to say thanks for your articles, I think your a credit to the Stockopedia team and it is a joy to read your articles, please keep up the good work.

thank you

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About Ben Hobson

Ben Hobson

Strategies Editor at Stockopedia. My goal is to help private investors learn and invest with confidence through the articles, ebooks and other resources we publish on site. I also occasionally bunk off to interview famous investors at expensive restaurants. I studied History at Aberystwyth University, trained as a journalist and covered business news and corporate finance before settling in as one of the first staff members at Stockopedia.  Away from Stockopedia I'm a mountain bike junkie. more »

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