Stock of the day 28/07/2016 – Greggs PLC

Can Greggs produce a tasty set of half year figures next Tuesday, or will it end up with a soggy bottom?

Having hit all-time highs of £13.69 at the end of July 2015, this year has been a bit of a comedown for the baked goods business. A sharp fall in early January, leaving the stock at 11 month lows of £9.60, set the tone of its 2016, and barring a brief rise back to £12 in March Greggs has struggled to gain any upwards momentum as the year has gone on. This 6 month decline was capped off with a post-Brexit plunge, the referendum result sending Greggs to a 15 month nadir of £8.69. Since then the stock has seen a mild recovery, climbing to a current trading price of £10.59 (IT-Finance.com, 28/07/2016).


(Source: IT-Finance.com 28/07/2016)

While the Brexit has been responsible for some of Greggs’ 2016 performance most of its major movements have followed its own trading statements. Back in January the company sparked a 15% fall as it revealed that like-for-like sales had only risen 2.3% over Christmas, a huge drop off from the 8.2% growth it managed in the same period the year before.

Flash-forward to the start of March and the company’s full year update had the polar-opposite effect, sending the stock 16% higher as Greggs announced a 25% increase in underlying profits to £73 million. Yet more important than that headline figure was Greggs’ intention to move away from its former role as a traditional baker to instead focus on the food-on-the-go market, worth £6 billion a year. This restructuring involves the closure of a quarter of its UK bakeries while expanding its stores to 2000 form 1700 in the next few years.

Greggs’ May statement wasn’t quite as explosive as those in January and March (which caused a 15% fall and a 16% rise respectively), though it did still spark a 3% climb as it posted a 5.9% increase in total sales, and a 3.7% in like-for-likes, across the first 18 weeks of 2016. Similar to its Christmas slowdown that like-for-like growth is far lower than the 6% managed at this point last year, with Greggs blaming that current high street plague: unseasonal weather.

As a FTSE 250 company, and a high street retailer at that, Greggs is among those most exposed to the adverse effects of Britain leaving the EU. Investors, then, will be expecting some kind of nod towards the referendum result’s impact in the company’s half year update on Tuesday, even if it is too soon for Greggs to assess the full scale of the matter.

Greggs PLC has a consensus rating of ‘Buy’ with an average target price of £12.29.