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Stock Watch

Greggs’ share price is heating up ahead of earnings

Greggs Share Price: Pastry in Greggs paper bag

British Bakery chain operator Greggs’ [GRG] share price has risen steadily through 2021, closing 64.69% up for the year on 30 September, at 2,948p. Investors are now looking forward to the upcoming third-quarter trading update on 5 October, to see if the trend will continue or if the bakery giant will flake.

The Greggs share price registered its all-time high close of 3,120p on 23 September as investors clamoured for a slice of the pie, following an earlier high close of 3,117p on 1 September.  

The Greggs share price dipped to 3,079p on 24 September saw, as the chain released its autumn menu. Greggs had announced that it was planning to increase the number of vegan options on its menu, with the introduction of two vegan breakfast rolls. On 28 September, the Greggs share price saw a relatively steep drop-off of 4.04% on the previous day's close.

The chain has also announced a partnership with homelessness charity Only A Pavement Away, aimed at offering employment to people at risk of homelessness.

How did Greggs perform in Q2?

The Greggs share price fell 2.85% on 3 August, the day of its Q2 earnings announcement, despite the company revising its annual earnings guidance upwards. The results showed it had been a strong first half of the year, with revenue returning return close to pre-pandemic levels, while pre-tax profit was up 36.4% from two years ago to £55.5m.

Diluted earnings per share rose 51.58% to 43.2p, from the 28.5p announced two years ago. Greggs also reinstated dividend payments which had ceased during the pandemic, at the level of 15p per share.

The road ahead for Greggs

Roger Whiteside, CEO of Greggs, recently hinted that the upcoming third-quarter report could make for positive reading, praising the company’s resilience throughout the pandemic and saying that sales had been “positive like-for-like since the spring.”
 
Speaking at the ‘Lunch!’ food-to-go exhibition at London's ExCel Centre in September, Whiteside also stated that, having established itself as a strong player in the breakfast and lunchtime market, Greggs is set to make a push into evening trade.
 
“We’ve had in our sights the need to get involved in the post-6pm daypart for some time,” he said. “If you go back 20 years, we didn’t do breakfast but now we’re number two in the breakfast market. We intend to go on the same journey with the evening.”

Rather than launching new product lines, Whiteside feels this strategy will hinge on raising awareness of existing products that are more suited to evening diners. “If you look at what sells in the evening, it’s burgers, it’s fried chicken and it’s fish and chips,” he said.  “We don’t do burgers and we won’t do burgers, but the hot chicken sandwich is something that we’re massive in for lunch. It just needs to gain recognition in the evening.”

Edison Group revised its profit-before-tax forecast for the 2021 financial year up by 7% to £135.4m, in response to the previous earnings report, and forecasts EPS for the year to come in at 107p. Taking into account EPS for the first half of the year, this implies an additional 63.8p per share that needs to be made up in the next two earnings reports.  Investors will be on the lookout for a number close to, and ideally north of, the 30p mark in the 5 October announcement to demonstrate that Greggs is on track.
 
Edison Group also predict profit-before-tax of £145.1m for 2022, with EPS of 116.1p for the year, making its price to earnings multiple for the year 24.7x. This is towards the high end of typical Greggs P/E ratios, which the group justifies by the chain’s “enhanced growth prospects.”


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