Greggs' warning a blip not a structural issue, according to the latest analysis

UBS maintains its 'buy' rating on Greggs PLC, asserting that recent profit warnings and dampened first-half sales, exacerbated by market headwinds, represent a temporary "blip" rather than a structural issue. Despite lowering EBIT forecasts by 5-9% and cutting its price target to 2,200p, the bank cites robust underlying fundamentals, including strong consumer perception, stable market share, easing competitive pressures, and significant store expansion potential from 2,649 to 3,500 outlets. UBS reaffirms its positive long-term outlook for the bakery chain, highlighting strong return on capital employed and growth runway, as investors anticipate the upcoming H1 results on July 29 for further insights.

Analysis

Despite an unscheduled profit warning from Greggs PLC (LSE:GRG) that signals full-year profits may fall slightly below 2024 levels, analysis from UBS frames the issue as a temporary setback rather than a structural flaw in the business model. The near-term headwinds, attributed to a challenging food-to-go market and exacerbated by recent heatwaves, have prompted UBS to lower its EBIT forecasts by 5-9% through 2027 and reduce its price target to 2,200p from 2,350p. However, this cautious short-term outlook is juxtaposed with a reaffirmed 'buy' rating, supported by strong underlying fundamentals. Key data points include robust consumer perception of Greggs' value, stable market share, easing competitive pressures in key southern UK regions, and cannibalisation rates that remain below pre-pandemic levels. The long-term growth thesis remains intact, centered on a significant store expansion plan to grow the network from 2,649 to approximately 3,500 outlets and a strong return on capital employed. The stock's 38% year-to-date decline reflects the market's reaction to the immediate challenges, with investors now focused on the half-year results on July 29 for further clarity on management's recovery strategy.

Key Decisions for Investors

• For investors with a long-term horizon, the significant 38% year-to-date share price decline may present an attractive entry point, aligning with UBS's view that current headwinds are a 'blip' and the core growth story remains intact.
• It is critical to monitor the upcoming half-year results on July 29 for management's commentary on like-for-like sales trends and their specific strategies to mitigate the impact of the softened food-to-go market.
• Investors should weigh the potential upside offered by the 2,200p price target against the execution risk of the large-scale store expansion and the reality of lowered earnings forecasts for the next three years.