Greggs shares spark as activist investor urges cost cuts

(Sharecast News) - Greggs shares shot higher on Monday following a report the bakery chain is being urged by activist investor Lauro Asset Management to cut tens of millions of pounds of annual costs over fears it will otherwise fall prey to a cut-price takeover bid. According to The Sunday Times, David Mercurio of the Singapore-based hedge fund has attacked Greggs' "timid" management after the company's share price plunged 44% this year, giving it a stock market value of £1.6bn.

The intervention came just hours after influential quiet activist investor Silchester took a 5% stake in Greggs, making it the company's biggest shareholder.

Lauro, which was previously backed by Singapore's sovereign wealth fund, GIC, ranks among Greggs' biggest investors.

City sources told the Times that Mercurio's views were representative of the frustration shared by many of the larger traditional investors who rarely publicly share their grievances with management.

Mercurio said that Greggs should identify "efficiencies" that would allow a minimum of £20m of costs to be cut annually. He went on to criticise chief executive Roisin Currie's claim in July that Britain was yet to hit "peak Greggs".

According to The Sunday Times, Mercurio said: "The best way to highlight Roisin's insistence that 'I absolutely don't believe we have reached peak Greggs' is through a comprehensive buyback programme. With little, if any, financial debt on the balance sheet, Greggs is now a clear outlier within the UK retail industry as one of the few operators with no buyback.

"With the current configuration - future robust cash flow generation post the current investment cycle, a pristine balance sheet and a valuation at multi-decade lows - there is a heightened risk that Greggs ceases to be an independent entity."

He added: "Private equity, in particular, is well suited to look through the current malaise... It is time for management to step up and protect this iconic British brand through a more articulate and comprehensive plan of value creation."

At 1525 GMT, Greggs shares were up 5.2% at 1,641p.