Hot Features
Premium
Level up your trading with our powerful tools and real-time insights all in one place.
My old pal, from my 12 years at t1ps.com, Robert Sutherland Smith is a cheery old fellow (he is 157) with a dry sense of humour. A noted enthusiast for early morning swimming on Hampstead Heath I imagine that he has a few spare hours on his hands right now. Surely he cannot be swimming at present? We will all find out shortly as he starts his new monthly “Pond Life” column on www.TomWinnifrith.com
So bored as he is he sent me a few of his thoughts on Greggs (LSE:GRG). We both like food and I am a major bear of this stock as you can read HERE
RSS writes: Greggs, that great totem pole of a certain kind of Englishness in a changing world, had a strong Christmas trading period. Sales rose 4.3% to which new wholesale and franchise sales contributed 3.0%. We were also provided with annual figures for the 52 weeks to 29 December 2012. They showed that for the year sales were up 4.8% to which, on annual basis, new wholesale and franchising contributed 2.8% with like for like sales down 2.7%. That was not wholly worrying because it was against a tough comparison last year. The share price moved up from 444p to 473p last seen.
One of the unique things that I have always liked about Greggs as supplier of bakeries is the fact that it supplied them to its own customers directly and not indirectly as a supplier to supermarkets. It has always seemed to me that Greggs close contact with customers put it in a league different from those food manufacturers supplying the powerful buying of margin demanding supermarkets. No one stood between Greggs and its customers and that has given it great commercial and pricing flexibility in the past.
But now one sees that model has been altered to give the company a new wing of ‘multi channel’ sales which short term are working well in Gregg’s favour. The question must be, why has Greggs changed the model? Partly no doubt because of changes on the High Street, from which, so the management tell us, the company is making a bit of a retreat. Suddenly, we have high streets full of cafes and eateries of all kinds (along with hairdressers and nail bars) which are competition for Greggs, although its brand and image have obvious defensive qualities.
The company reports that it has 1,670 outlets and will have increased that by a hundred net new shops in 2012 (Greggs has always been adept at closing some and opening more) with another fifty net new outlets planned in the year just begun to December 2013. Gradually, one reasonably supposes, wholesale supplies and franchising will become a bigger share of the mix of sales. At some point, Greggs will significantly cease being the business model we have come to know and rely upon.
Some have been bearish on the outlook for this year on the basis that food commodity price inflation will be a challenge for the company this year; a challenge acknowledged by Greggs in its end of year trading statement. However, that will be mitigated by the new streams of revenue and profits coming from wholesaling and franchising; mitigation that may disguise the greater competition on the High Street as a longer term issue for Greggs.
Meantime, Greggs will see the short term benefits of its brand new stream of wholesale and franchising income making up for the poorer ‘like for like’ sales due to more competition at a time of rising food commodity prices, which need to be passed on to financially squeezed shoppers. Although Gregg’s shares offer an above market dividend yield, that dividend yield payout out is not greatly superior to that of other food sector companies. The share price has rallied since the interim announcement, perhaps indicating that equity income funds as buying the 2012 final dividend in front of the figures and ex div date.
The market is estimating a 5% increase in earnings this year putting the shares on an estimated forward price to earnings multiple of 11.4 and a forecast 2013 dividend yield of 4.5%. I suggest that any further increase in the share price from here on will be ill-deserved.
Robert Sutherland Smith started his City career in 1967 and is an expert commentator on yield stocks. You can check out a selection of his blue chip ideas for the income investor HERE
Robert is one of the contributors to ADVFN’s new Onefreesharetip.com service. If you want a free share tip sent to you by email every working day from a panel of 20 experts simply register HERE
Robert is also an introductory speaker at the UKInvestor Show on April 13th where headline speakers include Nigel Wray, Mark Slater, Evil Knievil, Nigel Farage and Nick Leslau. For full details of the 20 star speakers and 80 companies presenting or to book your free ticket (now 60% sold out) click HERE
Sausage Role……….lol