Greggs get mostly positive rating from brokers thanks to better-than-feared trading

Greggs PLC's Q3 update revealed a slowdown in total sales growth to 6.1% and like-for-like sales to 1.5%, along with weaker volumes and reduced store opening targets. Despite these softer metrics, the company maintained its full-year guidance, leading to a 'better-than-feared' reception from brokers; Panmure Liberum upgraded to 'hold' citing underpinned 2025 forecasts, while RBC maintained an 'outperform' rating despite a lowered price target, highlighting potential upside from a Tesco partnership. However, some analysts caution that outer-year growth assumptions remain ambitious given current volume trends.

Analysis

Greggs PLC's third-quarter update indicates a marked deceleration in growth, with total sales rising 6.1% versus 7% in the first half, and like-for-like sales slowing to 1.5% from 2.6% over the same period. This softening is attributed to weaker volumes, estimated by RBC at approximately minus 3.5% in Q3, and a reduced store rollout plan of 120-140 sites for the upcoming year. Despite these headwinds, the company's decision to maintain its full-year guidance has been interpreted as a 'better-than-feared' outcome, leading to a rating upgrade from Panmure Liberum to 'hold' from 'sell'. Panmure notes that 2025 forecasts appear more secure, but cautions that outer-year assumptions requiring LFL growth to reaccelerate to 3.5% are 'ambitious'. Conversely, RBC maintains an 'outperform' rating, and while its price target was lowered to 2,190p from 2,350p, this still represents significant upside from the current price of 1,653p. RBC also highlighted the Tesco frozen food partnership as a potential upside catalyst not yet factored into current models, creating a tension between soft current fundamentals and potential future growth drivers.

Key Decisions for Investors

• Investors may consider holding existing positions, as the maintained full-year guidance has underpinned near-term forecasts and prompted an upgrade to 'hold' from a previously bearish broker.
• For those with a bullish outlook, the divergence between the current share price (1,653p) and RBC's 'outperform' target (2,190p) could present a buying opportunity, though this is contingent on the company achieving an ambitious reacceleration in like-for-like sales growth to 3.5%.
• Prudent investors should closely monitor upcoming trading updates for evidence of a volume recovery and progress on strategic initiatives like evening trade and the Tesco partnership, as these are critical to justifying the outer-year growth assumptions.