MIDAS SHARE TIPS: Greggs is looking tasty in the cost of living crunch

Midas last looked at Greggs in March 2021, when we advised those who had followed our earlier tip to take some profits.

Shares were high at £24.98, and although Greggs was back in a (worst) role after the pandemic, those who bought back in 2009 for the equivalent of £3.95 had some sweet rises when we recommended the shares. .

Today, with the shares back at £17.70, those who have followed our advice will be grateful – but it is now worth considering the current trajectory and value of the company, especially in light of the update on the third quarter of this week.

Most of us are familiar with the Greggs story. From its humble Newcastle beginnings as a Tyneside baker, the company has become a British institution, with a number of UK outlets far exceeding that of McDonald’s. The company’s icon status has been confirmed by the fact that you can find a glitzy Greggs in a prime position in London’s Leicester Square, wearing Greggs-branded clothing from Primark.

While there’s something comforting about the fact that so many of us prefer a sausage roll, steak bake or breakfast pastry over a Big Mac, the company has also evolved to change British tastes. Innovations include the vegan sausage roll, now supplemented with a vegan sausage melt and a sandwich. Meanwhile, the company also offers more and more hot meals and opens later.

You can probably guess most of the clouds on Greggs’ horizon. A cost of living crisis will force more of us to eat at home, while the continued trend of working from home after the pandemic is also affecting outlet sales in traditional office locations.

Then there’s price inflation, which the company has to absorb or pass on to consumers, which creates difficulties in both cases.

Against this background, the third quarter update was good news. Sales rose 15 percent in the 13 weeks to October, and the company has expanded its number of stores by 90 since early 2022. By the end of the calendar year, it expects to have 150 more than on January 1.

Although the Queen’s funeral hit sales, the company indicated it was still on track to meet its goals. Chief executive Roisin Currie was also optimistic about cost pressures. Although she predicts cost inflation of nine percent, she says the company has “an appropriate level” of food procurement coverage and energy costs for the company will be below its recently announced price cap.

The company has made two price hikes without changes in consumer behavior, thanks in part to its position at the lower end of the price scale. Sweet-hearted analysts welcomed the update. Jefferies’ Andrew Wade praised the company’s “impressive resilience,” while Investec’s Ben Hunt and Edison’s Russell Pointon both pointed out that the stock is cheap compared to historical averages.

MIDAS VERDICT: It’s hard not to feel good about Greggs. A true British success story based on our love of puff pastry and uncomplicated hot drinks is enough to make you laugh every time you see a TikTok teen wearing a Greggs hat.

The story is also fascinating in investment terms. While Pret isn’t on the menu for many budget-minded Brits, Greggs has a more affordable image and room to grow by increasing the number of delivery points, opening later and offering dinner, and opening stores in underserved areas. servant.

That brings the decision back to the valuation, and that also looks a notch. On this year’s annual profit, Greggs trades at a price-to-earnings ratio of 15 and the return is more than 3 percent. Historically, the ratio is more than 17 times. Worth a bite.

Traded on: Main market ticker: GRG Contact: 0191 281 7721 or corporate.greggs.co.uk