Friday 24 May 2019 11:14 am Interactive Investor Talk

Greggs shares are on fire, but can it last?

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By Graeme Evans from interactive investor.

After some great results, shares in fast-growing Greggs have taken just seven months to double in value.

Thanks to a social media frenzy and masterclass in PR, the Greggs vegan sausage roll is now surely a thing of stock market folklore.

The transformation of the Greggs (LSE:GRG) brand and share price in the past year has been truly remarkable, with almost £1 billion added to the company's value over 12 months as the now-famous meatless sausage roll is served to more customers nationwide.

The latest chunky profits upgrade has powered the FTSE 250 stock above the 2,000p barrier for the first time, having jumped by another 14% in trading. It's a stunning performance, particularly given the troubles elsewhere in the retail sector at the moment.

The faster momentum seen since January has left analysts struggling to keep up with events, with Peel Hunt having to raising its price target to 1,800p from 1,500p and UBS taking its figure to 1,880p from 1,725p. It's likely, however, that a current price/earnings (PE) multiple of 27.5 times may be hard to stomach for many investors.

Source: TradingView Past performance is not a guide to future performance

Year-on-year comparatives are set to toughen in the coming months and there's no guarantee that the nation's appetite for a meatless sausage roll will last.

But what's without doubt is the longer lasting impact that the recent sausage roll mania will have had on people's perception of the brand. It's likely the extraordinary level of social and general media coverage will have attracted additional visits to shops and given Greggs more of an opportunity to showcase its new store appearance and product menu.

At a time when so many retailers are struggling to get people through the doors, that's a significant boost. Like-for-like sales growth accelerated to 11.1% in the 19 weeks to May 11, albeit helped by favourable comparisons after last year's Beast from the East disruption.

However, Greggs reported good growth in product categories other than sausage rolls as "customers have recognised the investment made in our product range and quality".

The frenzy has also provided Greggs with the platform to accelerate other strategic initiatives that might otherwise not have happened so quickly. UBS analyst Heidi Richardson said these included the extension of shop opening hours into the evening period and a range of other digital and marketing campaigns.

The successful drive towards healthier options also continues, with Greggs launching a summer menu featuring pasta salads and a new vegan wrap of Mexican bean and sweet potato.

UBS increased its target for like-for-like sales growth in 2019 to 7.5% from 5% previously, which implies 6% growth over the remainder of the period. The broker's earnings per share forecasts have also been increased by 12% for this year and by 18% and 17% respectively for the following two financial years.

The Newcastle-based company now trades from 1,969 shops, having continued to take the Greggs brand into new food-on-the-go locations and to increase its presence in travel and workplace catchments.

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