Analysts are forecasting higher earnings and revenue for high street bakery Greggs’ [GRG] upcoming third-quarter trading announcement on 4 October, despite a plummeting pound and rising inflation.
The Greggs share price has fallen 45.4% in the year to 3 October, a much steeper decline than the FTSE 250’s 24% slide over the same period. This slump has left it trading at its lowest level since late 2020, with the UK’s deteriorating economic outlook prompting fears that reduced footfall and lower margins might hit profits.
British small cap stocks have suffered across the board so far this year. The iShares MSCI UK Small Cap ETF [CUKS], which has a 0.61% weighting in Greggs as of 3 October, fell 30% over the course of the year, with the economic situation squeezing most UK businesses. But CEO Roisin Currie is confident that the business is well-positioned to outperform.
With energy costs being a significant factor in the business model for the bakery chain, shares bounced on 8 September after the UK government announced that it was capping energy prices for businesses for the next six months beginning on 1 October. Greggs’ stock price jumped by 7.7% when murmurings about the anticipated freeze emerged two days earlier.
Greggs targets 150 new shops in 2022
Greggs’ half-year results, announced on 2 August, reported revenue increasing 27.15% year-on-year from £546.2m to £694.5m. This large increase in revenue was matched by just a 3.70% increase in earnings per share (EPS), from 43.2p to 44.8p, hinting that maintaining profit margins became more challenging during the first six months of 2022. Greggs shares rose 2.3% in response to the release of the results.
In its upcoming third-quarter update, investors will be paying attention to whether net shop openings leave Greggs on track to meet its target of 150 new shops over the course of the year. Like-for-like sales, which had been up 3.5% in last year’s October update, will also be in focus, with its previous guidance targeting a 13.1% increase in the four weeks to 30 July. The report is also likely to feature an update on guidance for the year, the tone of which could dictate share price movements immediately following the update.
Among 12 analysts polled by Yahoo Finance, Greggs is predicted to report total EPS of 117.35p for the year, which would mark a rise of 2.7% from 2021’s 114.3p. Revenue is estimated to hit £1.42bn for the year, representing a 15.4% year-on-year increase from £1.2bn.
H1 results top pre-Covid levels
Following the interim results, chief executive Currie hailed Greggs’ “encouraging performance” during H1, noting that sales had outstripped those for 2019, prior to the Covid-19 pandemic.
She suggested that tightening economic conditions could even benefit Greggs’ value proposition. The bakery’s many takeaway options provide an easy choice for customers who are on a budget and find themselves stretched for time. “[Greggs is] well positioned to navigate the widely publicised challenges affecting the economy and continue to have a number of exciting growth opportunities ahead.”
In the upcoming months, the company looks to be focusing its growth on store openings, developing new products (with a focus on healthier options) and extending Greggs’ availability and penetration. The chain currently boasts 2,200 shops around the country and plans to expand its opening hours. Investors hoping to cash in on a post-earnings bounce in the Greggs share price will keep a close eye on progress across these fronts.
Analysts bullish on Greggs stock
Chief market analyst Michael Hewson highlighted the company’s cost of sales following the first-half results. “Cost of sales rose by 32% to £260.7m,” he noted, going on to point that price increases can absorb rising expenses to an extent. However, with inflationary pressures currently squeezing Greggs’ target market from all sides, the company will probably be wary of hiking prices to the point of eroding its value proposition.
Analysts are, overall, bullish about the Greggs share price. Out of 11 analysts polled by the Financial Times, two analysts gave the stock a ‘buy’ rating, six rated it an ‘outperform’, and three recommended to ‘hold’.
Out of 10 analysts offering 12-month price forecasts, Greggs yielded an average target of 3,125p, 82.5% above the 30 September close. The low target of 1,950p represents an increase of 13.9%, while the high target of 3,770p represents a 120.2% increase over the next year.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.