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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