MIDAS SHARE TIPS UPDATE: Hold on to flaky Greggs
Investors in Greggs will feel their pasty is either half full or half empty, depending on when they took a bite out of the chain.
Midas has followed the sausage roll seller for years, as the high street stalwart added a late-night Leicester Square favourite and launched a successful clothing tie-up with Primark.
Greggs’ rise has been meteoric, but its share price trajectory has been more complex. Midas has followed this all the way.
We first recommended the shares in 2009 at £3.65, but advised investors to take profits in May 2021 at nearly £25. In October last year, after the shares had fallen back to £17.70, we said they might be worth another nibble. Those who did so have been rewarded handsomely – the shares closed at £23.82 on Friday.
The question on all our lips, given Greggs shares are down 14 per cent over the past six months, is whether its strategy is as flaky as its pastry, or if there is a sweet future ahead.
This week’s third quarter figures offered some clues. Like-for-like sales rose 14 per cent in the quarter to the end of September and there were signs of inflationary cost pressures easing.
So why the soggy bottom to the share price? One concern, says Russ Mould at DIY investment platform AJ Bell, is that while Greggs was targeting 150 openings it is now aiming for 135 to 145. As Mould says, this is ‘hardly disastrous’, but it might mean Greggs is close to having enough outlets already.
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Those hoping for improved sales guidance were disappointed too. Greggs said results would be in line with expectations.
Midas verdict: Greggs’ update saw shares slip 3 per cent on the day, suggesting investors sought something more meaty. Despite this, the baker is still relatively high valued. Trading on 20 times forward earnings this year, with a yield of 2.5 per cent, the business resembles a perfectly edible cake, but without the icing hoped for in this week’s results. The shares are still worth holding on to, as we wait to see how successful the current expansion plan will be.
Traded on: Main market Ticker: GRG Contact: corporate.greggs.co.uk or 0191 281 7721
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