The bakery chain’s share price has boomed 82% in 2019, helped by a flurry of brilliant trading updates. And with Q4 trading numbers slated for release on January 8, I reckon some more mighty gains could be just around the corner.
Greggs certainly got tongues wagging last time it updated the market in November. Back then it advised that total sales roared 12.4% higher in the six weeks to November 9, with like-for-like revenues up 8.3% from a year earlier. And as a consequence, it said that underlying profit before tax for the full year would be higher than previous expectations.
The FTSE 250 firm put the bright result down to “increased customer visits,” a phenomenon that means growth rates are going from strength to strength. That like-for-like increase in the six weeks, for example, was more than double the 4% increase recorded in the comparable 2018 period.
Tasty growth plans
The broader UK retail sector might be in the mire as the political and economic uncertainty related to Brexit drags on and on. However, Greggs is suffering no ill effects, the low cost of its edible treats, allied with the eternal appeal of cups of tea, doughnuts and other sweet treats, meaning that its tills keep on ringing out.
But putting these factors front and centre of the Greggs investment case would be doing the bakery business a massive disservice. Recent results owe a huge debt to the efforts Greggs has made to improve its menus too, with measures like refreshing its range of coffees, bulking up its healthy eating menus, and riding the growing popularity of veganism through its now-legendary vegan sausage roll, hungry Britons are banging its doors down like never before.
And Greggs is hell bent on rapid expansion to capitalise on this trend. It hit a major milestone in August with the opening of its 2,000th store, and confirmed back in the autumn that it remains on course for around 90 new openings in 2019.
On the up
The evergreen appeal of the company’s food and drink has kept annual earnings swelling for many years, but this is not the whole story as attempts to cut costs are also paying off handsomely. In the first six months of 2019, its underlying pre-tax profit margin jumped more than two percentage points to 7.5%, a result that helped corresponding pre-tax profit soar 58% to £40.6m.
City analysts expect Greggs to report a 24% earnings rise in 2019, and for it to follow this up with a 6% advance in 2020. And this leads to expectations that dividends will keep rocketing too — last year’s 35.7p per share reward is predicted to jump to 50.6p this year and 54.6p in 2020.
There are better yields out there than Gregg’s 2.4% for 2020, while a forward P/E ratio of 25 times also isn’t that appealing on paper. But the rate at which profits and dividends are growing still makes it a brilliant buy, I reckon. I’d happily buy it for my own ISA right now.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.