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Will Greggs shares make it or bake it through the UK’s third lockdown?

Cohan Chew
·3-min read
Bold Street is deserted during coronavirus lock down, Liverpool, UK.
Bold Street is deserted during coronavirus lock down, Liverpool, UK.

Once operating at its peak share price in 2019, Greggs (LSE:GRG) suffered a tumultuous year in 2020 due to the seemingly never-ending pandemic. The household-name bakery has since been relying on government support and is not expected to return to profit until 2022, and recently reported its first annual loss since the 1980s. However, with a vaccine on the cards, can Greggs pull through the UK’s third lockdown and earn its place back in investors’ portfolios?

All-time high to all-time dough

2020 effectively wiped out its 2019 efforts, resetting investors’ gains over the period. Plummeting from February 2020 highs of 2442p to 1119p lows in September 2020, Greggs’ stock price saw its biggest decline in its history.

Prior to the coronavirus, Greggs was enjoying year-on-year growth in sales (13.5% between 2018 and 2019) and profit (27.2% between 2018 and 2019). In its most recent quarter, the company showed a 31% decline in sales from last year.

Echoing the UK government’s inconsistent policies of stay-at-home orders and eat-out-to-help-out orders, Greggs’ stock price also behaved temperamentally and struggled to gain traction. 820 staff were cut from Gregg’s workforce throughout the period, and multiple Greggs factories were shut-down due to Covid-19 outbreaks.

Boom or crust

Along with the rest of the London Stock Exchange, good news for Greggs came in the form of Pfizer’s vaccine announcement. Immediately after the announcement, the bakery’s stock price jumped 25% – its biggest daily increase of 2020. Since the November announcement, Greggs’ stock price has continued to rally to 1907p; much closer to its all-time highs than its 2020 lows.

By looking at Greggs’ shares, you couldn’t tell that Boris Johnson locked down London in December and the rest of the UK shortly after. Unlike last year, there appears to be no correlation between social restrictions and Greggs’ stock price.

This is, in part, due to positive news coming out of Greggs HQ. In its most recent earnings report, Greggs revealed it operating at 85% of its sales equivalent 2019 level. This was taken as good news for shareholders and its stock price rose 10%. Greggs also boasted about its partnership with Just Eat and reported that its digital sales doubled.

Greggs currently has 600 stores in operation and is planning to increase that total to 800 by 2021.

However, it’s worth bearing in mind that the UK was largely in a tier system throughout the reported quarter, not full lockdown. One would thus presume that the current quarter will be worse for the company.

Furthermore, operating at 85% of its sales could be regarded as revenues falling 15%. Whilst online sales doubled, the figures only accounted for 5.6% of sales. Additionally, losses are expected to hit £15m.

Rolling ahead

Greggs’ stock price trajectory assumes that the UK will return to normality soon. Sadly, as chief medical officer Chris Whitty has stated, the country is a “long way” from life returning to normality. Greggs’ stock price is therefore too high to excite investors right now, in my opinion.

As cases in the UK continue to rise at an alarming level, a decline in Greggs’ shares should be expected. However, when the vaccine fully rolls out and Greggs can once again widely offer its famous sausage rolls again, I believe we investors can restore their utmost confidence in the company.

The post Will Greggs shares make it or bake it through the UK’s third lockdown? appeared first on The Motley Fool UK.

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Cohan Chew has no positions in any stocks mentioned. The Motley Fool UK has recommended Just Eat Takeaway.com N.V. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021