Berenberg ups rating on Greggs

Berenberg has upgraded its rating on Greggs to ‘buy’ after the bakery chain started to tentatively reopen some of its stores.

The bank, which previously had a ‘hold’ rating on the stock, has also upped its price target, to 1,860.0p from 1,540.0p.

Greggs closed its 2,050 stores in late March because of the coronavirus outbreak. Following the government’s decision to loosen some lockdown measures, however, it is now trialling reopening some sites. Reopened stores will carry a limited range only, and have both reduced opening hours and social distancing measures in place.

Greggs has said it hopes to have all its stores open again by July, should the trial prove successful.

Berenberg argued that prior to the Covid-19 pandemic, Greggs had delivered 18 months of “very impressive” like-for-like growth.

“Moreover, it had recently developed a strategy that, in our view, was capable to driving elevated levels of growth for several years to come.

“That plan has been halted for the time being, with most stores currently closed. However, we believe the structural growth of the food-to-go sector will eventually return, and feel Greggs is well placed to capitalised on that.”

Berenberg said trading was likely to be subdued initially. “Even once every store is open, we believe trading will remain well below 2009 levels for some time, due to a substantial year-on-year decline in footfall caused by heightened levels of working from home and lower consumer confidence.

“As such, despite modestly reducing the length of the full closure period in our model, we have cut our 2020 revenue forecast by around 10%. However, we still think the trial reopening is a step in the right direction.”

Berenberg also said that Greggs had addressed its lack of debt facilities, boosting its liquidity position by raising £150.0m for 11 months through the Bank of England’s Covid Corporate Financing Facility.

As at 1500 BST, shares in Greggs were 2% at 1,668.84p.