UBS upgrades Greggs to 'buy', sees 'significant' growth opportunity

UBS upped its rating on shares of bakery chain Greggs to 'buy' from 'neutral' on Wednesday, lifting the price target to 2,300p from 1,880p as it pointed to "significant" growth opportunity.

The bank had downgraded Greggs to 'neutral' back in February as it reckoned the strength of like-for-like growth seen through January was the result of the vegan sausage roll launch and was likely to normalise quickly.

"However, we have since seen LFL growth remain strong, still running at circa 9% for the last seven weeks of Q2 despite the initial publicity around the vegan sausage roll subsiding, and with comps strengthening after the weather impact in Q1-18," it said.

Given the strength of trading six months on from the vegan sausage roll launch, UBS said it has greater confidence in the outlook.

"In particular, we see potential for over 2,500 stores, with the latest UBS Evidence Lab geospatial analysis showing stable and lower cannibalisation than peers. In addition, Greggs is well positioned to drive like-for-like growth given slowing competitor openings, increased investment in strategic initiatives announced with H1 results, and leading value perception."

It said that while a lack of further profit upgrade with the first-half results - in part due to greater expected investment - may have contributed to recent share price weakness, this represents an entry point for "a high-quality, multi-year, growth story".

UBS noted that Greggs shares are down around 20% since its results, which were in line.

At 1045 BST, Greggs shares were up 3% at 2,024p.