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Home / Blog / blog / Company Focus – Have Bakery Investors Lost their Appetite? 04-10-2019

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Company Focus – Have Bakery Investors Lost their Appetite? 04-10-2019

After a stellar sales performance and the success of its vegan sausage roll earlier in the year, Greggs third-quarter update has been slightly disappointing. The high-street bakery reported a slight slowdown in like-for-like sales growth to 7.4% to the end of September. The results are far from catastrophic – in fact they still keep the firm on track for full-year expectations – but share prices plummeted ten per cent after they were released on Tuesday. Greggs share price now stands at 1856p at the time of writing, a 24 per cent fall from their peak price in July.

The bakery chain’s third quarter results showed a like-for like sales growth that is almost double the same period from the year before, but slower than its 10.5% growth in the first half of 2019. Is Greggs a victim of its own success – its seen phenomenal sales and growth this year, at its peak shares were up more than 60% since January. The chain has also opened 90 new shops this year, some of which are franchises, and aside from the highly publicised vegan sausage roll has introduced a raft of other new initiatives. Later opening times and a delivery service are being trialled, and Greggs has followed in the footsteps of high-end coffee chains by introducing a range of autumn drinks such as pumpkin spiced latte. And while Brexit is a potential fly in the ointment for most high street businesses, the bakery chain is preparing as well as it could by stockpiling ingredients and equipment.

So, is the current slump a good entry point for potential Greggs investors? Most analysts think it could be, as despite the slight slowdown of sales pace, the majority remain impressed by Greggs growth. Ultimately it has been one of the year’s high performers and its stock is valued at 25.5 times 2019 performance. Greggs has also unveiled a 35p special dividend and an 11% hike in its interim dividend.

The launch of the vegan sausage roll generated an impressive amount of publicity which undoubtedly led to an upturn in sales and a higher profile for the high street stores. It has also possibly led to the recent slump in share price, though, as investors raised their expectations to unsustainable levels. To put the results from the latest quarter into perspective, total sales were up 12.4%, largely due to new store openings, which is not far from the total sales growth for the whole of 2019 of 13.9%.

Leading analysts think that the growth indicates strong momentum for the business, even ahead of its latest planned strategic initiatives, and some are maintaining a target price of up to 2300p. Another encouraging sign for the bakery is The UK Food to Go Market Report 2019, which suggests that the market will grow by £2 bn over the next three years and as takeaway food is the lynchpin of Greggs business, this can only be positive.

Is latest share price dip is just a blip? Could Greggs could be a good buy for investors with an appetite for long-term yields?

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.


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