Wednesday, 20 March 2013

Greggs


Greggs is the leading bakery retailer in the UK, with over 1,650 shops throughout the country, serving freshly baked food to six million customers each week. They are one of the largest employers in the UK and employ over 20,000 staff. They benefit from a profit sharing scheme and this year, 10% of profits - £5.8m will be shared out.

Founded by John Gregg in Gosforth over 60 years ago, they floated on the market back in 1984 and have a great record of  increasing dividends to shareholders in each of the past 28 years.

Two years ago, they decided to expand the business by entering the motorway service via Moto Hospitality and things seem to be going well as they have now expanded to 30 sites. Additionally, they are also expanding into frozen foods with their ‘bake at home’ range via 750 Iceland stores - so far, sales have exceeded initial expectations.

The share price fell at the end of 2012 when CEO Ken McMeikan announced his intention to move on. In January, Roger Whiteside took up the reins - formerly CEO of Punch Taverns and prior to that head of food at M&S and also a founding member of Ocado. He knows Greggs well having been a non-exec board member since 2008.

They have today announced full year results for 2012. Although total sales were up 4.8% to a record £735m, this was mainly due to new store openings - like for like sales were down 2.7%. The dividend has increased by 1% over the previous year to19.5p and is covered 2x by earnings. The dividend has increased at a rate of 8% CAGR since the 8p paid in 2003. At the current price of around 495p the yield is 3.9%.


The business is very cash generative and at the end of 2012 they had net cash of £19.4m.

Obviously its been a challenging year but the board remain optimistic and have a strategy to develop new markets via wholesale and franchise agreements. Here’s a link to the full year results.

Mr. Market does not appear too impressed - at the time of posting the price is down around 5.5% in early trading. Despite this, the share price is still 10% ahead compared to the 454p at the start of 2013. Greggs is a fairly recent addition to my income portfolio - I like the strong brand and the fact they are both baker and retailer, a combination which should prove resilient over the long term. Hopefully, the management can convert the new strategy into more profitable growth and dividends can keep ahead of inflation in future years.

Some might describe this company as a little boring - fine by me so long as they continue to keep a close eye on costs and deliver rising profits and dividends.

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