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Important information: The value of investments can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. This is a third-party news feed and may not reflect Fidelity’s views.

Numis starts Greggs at 'hold', says growth is 'baked in'

(Sharecast News) - Numis initiated coverage of Greggs on Wednesday with a 'hold' rating and 2,560p price target as it said growth was "baked in". Greggs is "the undisputed UK food-to-go specialist", it said, with a share of around 8% of a "highly fragmented" market.

Numis said the company's track record is impressive, reporting 10-year CAGR store growth of 3.4%, revenue of 7.5% and pre-tax profit of 11.3%.

It noted that in 2021, management set out to double revenue from £1.2bn to £2.4bn by 2026 and has already achieved half of this.

"However, over the next three years an increasing amount of this growth will originate from franchisees, delivery and loyalty, all dilutive to gross margin and in most instances to EBIT margin too meaning we forecast profit before tax CAGR of circa 10%," it said.

"The shares are trading at 20x FY24E price-to-earnings rate, in line with five-year average and therefore we initiate with a hold."

The broker said it prefers Domino's, which has a clearer growth trajectory, is less capital intensive and trades at an 8% discount to Greggs.

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Important information: This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Past performance is not a reliable indicator of future returns.

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