Newcastle-headquartered baker Greggs (GRG) delivered a tasty performance in 2017, cooking up further like-for-like sales growth whilst successfully expanding its shop estate in the face of cost and consumer headwinds.

The savoury snacks, sandwiches and sweet treats seller, a running Shares Great Ideas selection, also reports an ‘encouraging’ start to 2018, news that nudges the shares 11p higher to £13.23 (leaving our bullish call 12.4% in the money).

PORTFOLIO NOURISHMENT

Full year results from the value meal deals favourite, successfully transforming itself from a traditional high street baker into a broader bakery food-on-the-go retailer with healthy growth prospects, reveal a 1.9% increase in adjusted pre-tax profit to £81.8m.

However after one-off items, Greggs reports a 4.3% drop in pre-tax profit to £71.9m (2016: £75.1m). Rising inflation in 2017 not only increased Greggs’ food ingredient costs, with wages also on the rise across the retail sector, it also impacted on consumers’ disposable income.

All the more impressive then is the fact company-managed shop like-for-like sales (excluding franchises) grew 3.7% in the year, albeit a slight slowdown from the 4.2% growth generated in 2016.

Greggs is also ‘encouraged’ by recent trading, with like-for-like sales up 3.2% in the 8 weeks to 24 February. The cash-generative concern also proposes a 4.2% hike in the total dividend to 32.3p, keeping income-hungry investors sweet.

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PERIOD OF PEAK INVESTMENT

‘In 2017 we delivered another strong performance in challenging economic circumstances as rising inflation impacted both our own costs and customers' disposable income,’ comments CEO Roger Whiteside.

‘At the same time we continued to make good progress with our business transformation programme.

‘Whilst the UK consumer outlook remains challenging, we are encouraged by the start to the year. 2018 will be the peak year for investment in our supply chain as we create the platforms for further growth. We also plan to open a record number of new shops as we implement our plan to grow Greggs as a leading food-on-the-go brand.’

Greggs’ classic favourites remain popular, the Festive Bake and minced pies selling well during the Christmas period and the budget breakfast meal deal continuing to lure in cash-strapped consumers.

Yet Greggs has continued to develop its coffee range with the introduction of a caramel latte, while healthier options, including its Balanced Choice range offering fewer than 400 calories and good nutritionals, continue to grow.

THE ANALYSTS’ VIEW

‘Newcastle’s finest major sausage roll maker, now also swimming in the world of cranberries, falafel and porridge, has reported another year of profit progress albeit a tad behind our forecasts, which we believe were a little bit above consensus,’ writes Shore Capital.

Over at Canaccord Genuity, analyst Nigel Parson writes: ‘2018 is an important year for Greggs as it marks the investment peak in the production and supply chain transformation to a national platform.

‘This will allow it to capture the economies of scale that it could never achieve in a regional set-up.'

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Issue Date: 27 Feb 2018