An overview of Greggs Plc’s business
Greggs Plc (LON: GRG) is a Newcastle, the United Kingdom based food retailer and wholesaler, that operates through almost 2050 of its stores across the United Kingdom, by selling freshly prepared food and beverages at extremely affordable prices with a “Food-on-the-go” model. The company has a wide menu that includes food items such as Breakfast, sandwiches, Pasta, Salads and Soups, Drinks and Snacks, Bakes, Sweet Treats, Platters as well as Hot to go food. The company focuses on healthy eating and makes sure that all their products have adequate and necessary nutrition, while not compromising on the taste. The company is also in the phase of developing its online ordering, delivery and late-night takeaway business, to go on the side of its traditional business. The company operates around various travel hubs and roadside locations with parking. The company’s stores are also located near motorway service stations and petrol forecourts.
Greggs Plc Trading Update
On 8th January 2020, the company issued a press release to report a trading update for 52 weeks ended 28th December 2019. The company announced that the total sales had increased by 13.5 per cent, as compared to the growth of total sales in 2018 at just 7.2 per cent. The like for like sales for the company managed shops were reported to be at 9.2 per cent, as opposed to just 2.9 per cent in 2018. The company opened 138 new shops, while closed 41 shops during the period. As on 28th December 2019, the company reported that 2050 of its shops were reported to be trading. The company reported that the full-year underlying profit before tax will be marginally ahead of the expectations of the company that had been previously reported. The company made a special announcement of a bonus payment of £7 million to all its employees, which will be paid at the end of January.
Let us have another look at this bonus payment and analyse how this might impact the company’s business and its position in the market.
Declaration of a special payment of £7 million for employees
On 8th January 2020, in the trading update which the company issued, one of the key highlighting point was the announcement that all the employees of the company will be receiving an amount close to £300, in a special payment, or bonus, amounting to a total of £7 million as a cost to the company. As per the company, this one-off payment, that will be made at the end of the month to all the employees in the month’s pay packet, has been announced on the back of the very successful launch of one of the company’s product, the Vegan Sausage Roll, which resulted in a impressive boost in sales and profits at the end of the year. The company also mentioned that the decision to make the special payment is being made due to the critical contribution of all the employees towards the success of the business of the year.
The plan has been structured in a way, where, some 19000 staff of the company, who have been employed with Greggs before and up to March last year, will receive the entire £300 amount, while the others will be paid £75 for each quarter they have been with the company, up until the end of the last year. This announcement of the pay-out to the employees follows the October 2019 decision of the company to pay a special dividend to its shareholders, which amounted to a total of £35 million.
As per the company, last year, they saw robust demand for their traditional products, while the launch of its Vegan Sausage roll was a primary driver of sales for the period. The company reported that they have bigger expansion plans for the next, both in terms of menu, as well as Geographical presence. The company will be adding more products to its Vegan menu with the launch of Vegan Steak bake and Doughnut. This will be followed by the recent Christmas’ launch of Sweet Mince Pie. The company will be opening around 100 new stores by the end of 2020 and is currently experimenting with the idea of takeaway dinners, by shaving some shops to open later, while also trying to enter the online ordering and home delivery business.
Amongst all this positivity around the business and the company’s excellent performance, analysts and experts from the food sector believe that the company might face a huge challenge in terms of cost inflation for various products, such as pork, particularly in case of a hard Brexit. Another challenge for the company will be to continue performing better against the excellent sales performance of the previous year.
After the announcement of this surprise bonus, the shares of the company shot up, following which various analysts even started saying that the company is on the cusp of becoming a part of the FTSE 100 Index of the London Stock exchange, or a blue-chip stock, primarily because of an excellent management and the culture that has been maintained by the company, followed by the announcement of the employee special payment announced and strong financial statements that are a testament to its growth in the last one year. Some also view this as a result of the clever diversification by the company, including the introduction of healthier option on its menu and a strong social media brand presence. Though the company becoming a part of the FTSE 100 Index is still in talks, it is important to look at some of the financial highlights of the company ahead of that.
GRG Financial Highlights
On 30th July 2019, the company had reported its half-yearly results for the 26 weeks ended 29th June 2019. The company had reported a sales growth of 14.7 per cent year on year with the sales for H1 2019 reported at £546 million. Underlying Pre-tax profit margin also surged to 7.5 per cent in H1 2019, as opposed to 5.4 per cent in H1 2018, primarily due to the operational cost control of the company, as well as a boost in the sales. The company announced an ordinary interim dividend for the period at GBX 11.9 per share, which was a growth of 11.2 per cent. On the back of an excellent sales and profit performance, the management of the company also declared a special dividend of GBX 35.0 per share, which was paid in October 2019, as previously mentioned.
GRG Stock Price Performance
(Source: Thomson Reuters) Daily Chart as on 09-January-20, prior to the closing of the London Stock Exchange
As on 9th January 2020, at 08:30 A.M GMT, by the time of writing, Greggs Plc’s stock price was reported to have been trading at GBX 2439.00 per stock on the London Stock Exchange, an increase in the value of 0.21 per cent or GBX 5.00 per stock, in comparison to the previous day’s closing price, which was reported at GBX 2434.00 per stock. The market capitalisation of the company has been reported to be at GBP 2.462 billion in reference to the current stock price. With this Market Cap, the company is very close to becoming a part of the FTSE 100 Index.
Greggs Plc’s share has given a positive return of around 67.17 per cent, in the previous twelve months, from the price of GBX 1459.00 that the stocks achieved on January 09, 2019.
The beta of the stock of Greggs Plc has been reported to be at a value of 0.89. Through this, we can infer that the movement in the price of Greggs Plc stock, is less volatile as opposed to the movement of the comparative benchmark index in the last year.
2019 was a great year for the company, both in terms of operational and financial performance, as well as an excellent performance by the stock price, resulting in a massive growth in the shareholder value. The company strong performance, in a sector which is relatively a dull sector, especially in the times of a poor economic environment, speaks volumes about the company. This has already set up a great foundation for the year to come, backed by a lot of cash surplus, resulting into the payment of special dividends as well as bonuses to its employees, and a great resource for expansion in the coming year. But the company also faces some risks, in the face of cost inflation, especially for Pork, which could hamper its growth plans, as well as the uncertainty around Brexit, which, if it turns a no-deal scenario, could be a deterrent in the company’s operation, resulting in a high friction trade between UK and the European Union, as the company procures a lot of its raw materials from the other parts of the European Union currently. However, the overall scenario is looking good and with the resources that the company has along with the strong management, the future of the company looks extremely bright.
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