Hobson: Greggs on a Roll as Sales Rise

THE WEEK: Morningstar columnist Rodney Hobson says pastry maker Greggs has started 2019 with a bang - while Lloyds fizzles and Sainsbury's wimpers

Rodney Hobson 25 February, 2019 | 7:38AM
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Greggs pastry maker bakery stock share price vege sausage roll sales

Give me a chocolate éclair any day but it’s the vegan sausage roll that has got baker chain Greggs (GRG), dare I say it, on a roll. It may be anathema to meat lovers but at £1 a time the Quorn pastry brings in a whole new raft of customers. Having much-scorned television presenter Piers Morgan as a critic probably helped.

Greggs has a commendable habit of coming up with a popular new line from time to time. Non-vegans will fondly remember the bacon breakfast roll as the last blockbuster. Come into a shop for one item and there is a good chance you spot something else to your taste – bizarrely, sales of pork sausage rolls have increased alongside vegan ones.

Total sales for the 1,950 retail outlets were up 14.1% in the seven weeks to 16 February and like-for-like sales in company-managed shops rose by 9.6%. These figures are substantially better than the excellent sales news given in the previous trading update on 9 January. And the vegan sausage rolls are available in only half the outlets yet, so there is scope for expansion.

This great start to 2019 carries forward the momentum built up in the second half of 2018, with more customers coming through the doors and widening their spend. Underlying profits for the full year are thus likely to be ahead of previous expectations.

The shares jumped 11% to top 1,700p for the first time and have since pressed on to 1,800p. They are worth three times as much as they were five years ago.

As a Greggs shareholder myself I’m a little reluctant to introduce a note of caution into this exhilarating narrative but investors should bear in mind that the rate of growth eased slightly in February, while figures for March will be flattered in comparison with the snow-affected spring last year (unless the beast from the east is repeated).

I see no reason why shareholders should take profits at this stage. If you are thinking of buying, however, I would suggest waiting to see if the euphoria fades and if it is possible to buy at a lower level.

Lloyds: Off a Roll

One of the great mysteries of investing is why so many people were willing to buy shares in Lloyds Bank (LLOY) while there was still an overhang of Government-held stock waiting to be dumped yet so few want the shares now they have been set free and the dividend is rising. They bought when the PPI reparations looked like stretching out to the crack o’ doom but not now the August deadline is looming.

Profits were up 24% in 2018, or 6% on an underlying basis, and the dividend total is raised 5% to 3.21p, giving a yield of just over 5%. Optimists had hoped for 5p but that was always wishful thinking.

Lloyds is admittedly still setting aside cash for PPI claims, although the £750 million this time was less than half the 2017 level and this year could well be lower. It is also potentially the most vulnerable UK bank to a messy Brexit but it has already managed to cope with more than two years of uncertainty and is just getting on with the job.

The shares did manage to rise from 58.4p to 61.1p on the day of the results but next day they were back below 60p. I may be biased as I am a shareholder but that looks too pessimistic to me.

Sainsbury’s: Roll Over

Ouch. My indolence in not selling my Sainsbury’s (SBRY) shares above 300p when the proposed merger with Asda was announced has been punished severely. The Competition and Markets Authority threatens to block the deal, sending the shares down to 231p, which is even lower than their level before the deal was announced.

It’s too late for regrets, and while it is best to assume the Asda deal is dead in the water I will grit my teeth and hold on.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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