MIDAS PART TIPS UPDATE: Keep the flaky Greggs
Investors in Greggs will feel like their pie is either half full or half empty, depending on when they took a bite from the chain.
Midas has been following the sausage roll seller for years, as the street star added a late-night favorite in Leicester Square and launched a successful fashion collaboration with Primark.
Greggs’ rise was meteoric, but the share price trajectory was more complex. Midas pursued this to the end.
We first recommended the shares in 2009 at £3.65, but advised investors to take profits at almost £25 in May 2021. In October last year, after the stock had fallen back to £17.70, we said it might be worth another nibble. Those who did were richly rewarded – shares closed at £23.82 on Friday.
With Greggs shares down 14 per cent in the last six months, the question we all have to ask is whether the strategy is as volatile as the results or whether there is a bright future ahead.
Yummy: Midas has been following the sausage roll seller for years, as the street star added a late-night favorite in Leicester Square and launched a successful fashion collaboration with Primark
This week’s third-quarter numbers provided some clues. Like-for-like sales rose 14 percent in the quarter to the end of September and there were signs of easing inflationary cost pressures.
So why the wet bottom of the share price? One concern, according to Russ Mold of DIY investment platform AJ Bell, is that although Greggs was aiming for 150 openings, it is now aiming for 135 to 145. As Mold says, this is “not a catastrophe”, but it could mean that Greggs is about to have enough sockets already.
Even those who had hoped for a better sales forecast were disappointed. Greggs said the results were in line with expectations.
Midas judgment: Greggs’ update showed shares fell 3 percent on the day, suggesting investors were looking for something meatier. Nevertheless, the baker still enjoys a relatively high status. With 20 times expected earnings this year and a yield of 2.5 percent, the company is like a perfectly edible cake, albeit without the icing one might have hoped for from this week’s results. It’s still worth holding on to the shares 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