LSE – Greggs on a roll as pandemic uncertainties bite

The UK trade department’s comments about selling the EU “innovative jams” in the post-Brexit era might have been widely mocked, but looking at Gregg’s share price chart over the past five years, they don’t seem quite so mad. The bakery chain’s market value tripled from 2015 as it rode a wave of successful new products, encapsulated in the launch of its vegan sausage roll at the beginning of 2019.

Yet despite its best efforts Greggs, like every other food takeaway, suffered as the pandemic shut offices and shops in 2020. It’s trading update Wednesday, however, offered some hope to investors of a revival in the new year. December’s like-for-like sales were 85 per cent of the previous year’s number and an online partnership with Just Eat meant digital sales doubled in the fourth quarter. Shares reacted well, rising around 10 per cent.

It wasn’t all good news though. Boasting that the company achieved 85 per cent of last year’s sales is, of course, just another way of saying revenues fell 15 per cent, and Greggs only managed to open a net 28 new shops in 2020. Online, which is still a new game for the company, accounted for a diminutive 5.6 per cent of sales.

How you think about Greggs’ future really depends on whether you believe 2022 will be remotely like 2019. On the plus side, its £37m of net cash and fresh £100m revolving credit facility offer space for further expansion. With commercial landlords across the country seemingly desperate for dependable tenants, there will be plenty of opportunity to cut costs on the 100 net new stores it plans to open this year.

The half-filled meat pasty view is that, if working from home trends become habits, Greggs will be forced to rethink its high street and transport hub locations. Given chief medical officer Chris Witty raised the spectre of further winter lockdowns at Tuesday’s Downing Street press conference, it’s pretty easy to make the case that pre-Covid working arrangements will be slow to return, if at all.

There’s no doubt that Greggs’ business should be fine, but even if it does grab market share during the pandemic, how big will that market be once we’re allowed to venture out into the world again? With its shares priced at 21 times 2022’s forecast earnings, the innovative baker still feels expensive when the answer to that question is still out of focus.

LSE: trading places

London’s inferiority complex is showing again, writes Bryce Elder.

The London Stock Exchange wants us to believe that looser listing rules will attract exciting new tech businesses. Its requests to a government review of the rules include support for dual-class share structures and a scrapping of the requirement to float at least 25 per cent of a company’s equity.

Attempts to compete with New York and Hong Kong for IPOs are being hindered by this lack of flexibility, LSE argues. It proposes watered down rules for the Premium Segment, the top level of a market structure that has more segments than a chocolate orange.

Therein lies the problem. Any company wishing to bypass ownership limits and one-share-one-vote principles can already float in London by seeking a Standard listing, which was the path taken by mail-order retailer The Hut Group. This option carries the penalty of exclusion from FTSE indices — though THG’s 60 per cent gain since flotation in August raises valid questions about how much that matters. Last year’s collapse of hospital owner NMC Health had already demonstrated that a premium listing is no guarantee of quality.

Even weaker rules are available on Aim, with its there-be-dragons approach to regulation, and via LSE’s High Growth segment, which was introduced in 2013 in the perennial hope of making London more attractive to tech but which has attracted only two IPOs. Recent experiments have been no more successful, with a Shanghai-London Stock Connect co-operation scheme introduced last year being taken up by just four companies.

LSE now wants to make the most successful segment of its marketplace look more like the failed bits, which is an odd way to run what remains the world’s sixth biggest stock exchange by IPO proceeds.

The unsolvable problem faced by LSE is that London’s listed tech sector has all-but disappeared. An investment ecosystem that supported companies such as Arm Holdings, Misys and Autonomy no longer exists. What’s left is a global venture capital network that holds back floats until the moment is right to exit on the most valuable venue. London, with its relative preference of dividends over growth and its overweighting towards financials and minerals, is unlikely to ever be their first choice.

Instead, any weakening of the gold-standard Premium listing rules in pursuit of IPOs bound for China and New York risks upsetting a more important ecosystem — the unique concentration within the Square Mile of people who can read a bank balance sheet, an actuary table and a geologist’s report. Rather than looking enviously at the markets above, LSE needs to defend its lead over those below. It’s not Nasdaq, but it should also try to avoid becoming Frankfurt.

Greggs: jamie.powell@ft.com
LSE: bryce.elder@ft.com