Company of the week: Greggs

High-street bakers Greggs faces serious challenges, says Phil Oakley.

Greggs (LSE: GRG)has had a tough year, with profits falling sharply. Last week, it said that Christmas sales were 3.1% higher than a year ago, which boosted its shares. That said, the business still faces serious long-term challenges.

Greggs has found itself caught in the high-street bloodbath caused by shoppers buying more stuff over the internet. This has meant fewer visitors to its shops, a trend the company is trying to reverse.

It's moving away from its bakery roots and turning itself into what it calls a "food-on-the-go" retailer. This is seeingit close shops on high streets and open new ones in places such as service stations and garage forecourts.

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This looks like a sensible move, but the market for takeaway food remains fiercely competitive, with lots of places beckoning the lunchtime pound.

All these changes cost money and will stop profits growing for a couple of years. Greggs will probably be a better business once it has finished the job, but with the shares on 15 times forward earnings, a lot of the benefits look priced in.

Verdict: stay clear

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for Moneyweek in 2010.

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