Numis starts Greggs at ‘hold’, says growth is ‘baked in’

Greggs is "the undisputed UK food-to-go specialist", it said, with a share of around 8% of a "highly fragmented" market.

Numis said the company’s track record is impressive, reporting 10-year CAGR store growth of 3.4%, revenue of 7.5% and pre-tax profit of 11.3%.

It noted that in 2021, management set out to double revenue from £1.2bn to £2.4bn by 2026 and has already achieved half of this.

"However, over the next three years an increasing amount of this growth will originate from franchisees, delivery and loyalty, all dilutive to gross margin and in most instances to EBIT margin too meaning we forecast profit before tax CAGR of circa 10%," it said.

"The shares are trading at 20x FY24E price-to-earnings rate, in line with five-year average and therefore we initiate with a hold."

The broker said it prefers Domino’s, which has a clearer growth trajectory, is less capital intensive and trades at an 8% discount to Greggs.