Convenience food purveyor Greggs (GRG) served up a tasty third-quarter trading update showing strong like-for-like sales growth and further market share gains.

However, a soggy market backdrop, a lack of earnings upgrades, reduced guidance for store expansion and a feeling the stock is fairly valued saw the shares ease 3% to £24.05.

WHAT DID THE COMPANY SAY?

Total sales for the 13 weeks to the end of September were up 20.8%, driven by like-for-like growth of 14.2% and new store openings.

Underlying growth was helped by more customer visits, wider adoption of the Greggs App and loyalty scheme, and increased evening trade with 8.8% of sales coming after 4pm in company-managed shops.

Meanwhile, the firm opened a net 82 new stores in the first nine months of the year (144 openings less 62 closures) and expects to open between 135 and 145 net new stores in total this year, below its previous forecast of 150 sites.

Greggs is stepping up its home-delivery offering and has begun an accelerated roll-out on the Uber Eats platform across 500 of its stores alongside its existing service with Just Eat with further expansion planned for next year.

On the cost front, the firm said input price inflation continues to ease as it laps 2022’s ‘significant’ commodity-led increases, which will benefit margins, and although it faces a ‘very strong’ comparative performance in last year’s final quarter it still expects full-year results to meet expectations.

WHAT DO ANALYSTS SAY?

‘Greggs remains a business with considerable ambition to grow its business, which we like, noting confidence in this statement for the 2024 opening programme,’ commented Shore Capital’s head of research Clive Black.

‘We believe the stock merits a premium equity rating, and that is what the market is affording the equity. Whilst there is much to admire about the business and its investment thesis, we feel a 2023 price to earnings ratio of 20.1 times, falling to 18.1 times in 2024, a ratio of 11.1 times 2023 EV/EBITDA (enterprise value to earnings before interest, tax, depreciation and amortisation), noting a negative medium-term free cash flow yield, with a dividend yield of 2.4%, represent full and fair value,’ added Black.

Greggs is ‘in a sweet spot in the retail market, backed by its growth initiatives and good cost management’, observed Russell Pointon from research group Edison.

‘The Q3 results reaffirm its resilience and share gains. Expanding its shop estate and investing in the supply chain further reinforce its market presence, albeit there may be some disappointment about the slightly lower than expected net new store growth for the full year

‘While some economic uncertainties persist, Greggs' consistent delivery of strong results, along with its reputation for customer satisfaction and affordability, bodes well for its future.’

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