London, UK, 17 March 2022

Greggs (GRG): Not peak Greggs yet

Greggs has demonstrated a strong trading recovery through FY21, which gave management confidence to accelerate its Next Generation Greggs growth strategy with the aiming of doubling revenue by FY26. The accelerated growth prospects reflect a combination of better opportunities in the property market due to COVID, helped by Greggs' innovation in store formats, and pushing ahead with developing revenue in new channels and underpenetrated dayparts, which have trialled successfully. The growth will be supported by further menu development, where Greggs has a strong track record of innovation, and a greater focus on increasing customer loyalty. Our DCF-based valuation is £31.60 per share.

The share price is trading at a discount of c 36% to our DCF-based valuation of £31.60, which assumes management achieves its ambitious revenue target of £2.4bn by FY26. The P/E multiples for FY22e (19.7x) and FY23e (19.0x) are at only a modest premium to its long-run average (17.9x since FY13) despite now offering potentially higher revenue growth (CAGR 15% through FY26) than historically (CAGR c 7% FY13-19, pre COVID-19).

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