Shore Capital downgrades Greggs; points to 'post-lockdown strains'
Shore Capital downgraded its stance on shares of bakery chain Greggs to ‘sell’ from ‘hold’ on Friday as it pointed to "post-lockdown strains to come" and the potential for earnings per share and valuation pressure.
Food & Drug Retailers
4,446.57
17:14 20/12/24
FTSE 250
20,450.69
17:14 20/12/24
FTSE 350
4,463.29
17:14 20/12/24
FTSE All-Share
4,421.11
17:04 20/12/24
Greggs
2,766.00p
16:45 20/12/24
"The coronavirus crisis is a disaster for Greggs," ShoreCap said, noting that 2020 will see an earnings and dividend wipeout.
"We would expect rebuilding in the years thereafter but with a somewhat depleted balance sheet," it added.
The broker said it will take "some years" to rebuild to FY2019 earnings per share as new norms impact Greggs' earnings from a sales and cost perspective.
"Indeed, social distancing and behavioural change, less commuting and a decline in employment, could represent a perfect storm for Greggs," said analysts Clive Black and Darren Shirley.
"Whilst an adaptable and very well-operated business, strong management and a leading value proposition are all virtues, we feel that 19.6x peak earnings (FY2019) represents an unfavourable risk-reward equation given that medium-term earnings could be materially lower than pre-coronavirus levels.
"As such, Greggs could be structurally de-rated on a lower earnings base."