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Some time again, I owned Greggs (LSE:GRG) shares in my ISA portfolio. I used to be a giant fan of the model and would usually pop into my native Greggs for a espresso and a salad field, then one way or the other stroll out with a corned beef pasty and a jam doughnut. Don’t decide, please (I’m Northern).
The baker’s share worth powered greater within the FTSE 250 for a few years as Greggs retailers sprang up in airports, retail parks, practice stations and motorway service stations. Anyplace folks have been on the transfer, principally.
From the beginning of 2010 to August 2024, the share worth elevated virtually 700%. Earnings additionally flowed to shareholders, with particular dividends on high of the unusual payouts turning into the norm.
Administration trumpeted plans to develop to three,000+ retailers throughout the UK, up from lower than 1,500 on the finish of 2010. All the things was going nice weapons.
Then this occurred…
Fairly shortly final yr,issues started to vary, and that is the interval once I began to have doubts in regards to the funding. In October 2024, new Chancellor Rachel Reeves introduced an increase in employer’s Nationwide Insurance coverage contributions. For Greggs, which has extra areas than McDonald’s and employs round 32,000 folks, this could value it tens of tens of millions additional yearly.
Okay, I assumed, not nice. However the firm has pricing energy and may offset a few of that by including a few cents onto its meals. CEO Roisin Currie remained bullish on the time, saying: “Our store development plan, our provide chain funding, none of that modifications. We’re nonetheless completely going for development“.
Reeves mentioned it was “a once-in-a-parliament funds to wipe the slate clear“, placing the general public funds “again on a agency footing“. Nonetheless, I turned satisfied that taxing companies closely to fund greater public spending wouldn’t result in financial development. Fairly the alternative.
I feared job losses would comply with, with the knock-on impact of much less foot site visitors for retailers. With Greggs shares nonetheless carrying a development premium firstly of 2025, I made a decision to exit my place.
That was a fortunate escape as a result of the share worth has crashed 40% since!
Slowing development
Greggs has certainly skilled slowing development amid a deteriorating market backdrop. In October, it reported a 6.1% rise in Q3 gross sales, however like-for-like gross sales have been solely up 1.5%.
That was a large deceleration from earlier years, and full-year working revenue is ready to be barely under final yr’s £195m.
In the meantime, the general public funds are usually not on a agency footing. Removed from it. The truth is, Reeves may even be set to introduce extra tax rises later this month within the Autumn Price range. This dangers heaping extra stress on a fragile economic system (UK unemployment has simply hit a four-year excessive).
Revisiting the inventory
Clearly then, there are large darkish clouds hanging over Greggs inventory proper now. Nevertheless it does seem like the pessimism may need gone too far. The ahead price-to-earnings ratio is now simply 12, whereas there’s a well-covered 4.4% dividend yield on provide.
That appears good worth for a well-entrenched model with strong revenue margins (by trade requirements). The store development plan nonetheless exists.
For affected person buyers keen to take a longer-term view, I believe Greggs inventory deserves nearer consideration. It would serve up market-beating returns from in the present day’s worth of 1,553p.
