UBS says there are no structural issues with Greggs PLC (LSE:GRG) despite recent trading challenges, reaffirming its positive view on the bakery chain’s positioning and strategy.
The bank’s latest analysis, based on its Evidence Lab data, highlights strong consumer perceptions of Greggs’ price and quality, stable to improving market share, and robust engagement with its mobile app.
Additionally, geospatial data shows that Greggs’ cannibalisation rates remain well below pre-pandemic levels, and competitive pressure is easing in key regions like London, the East, and the South East, supporting plans to expand the store network from 2,649 to around 3,500 outlets.
However, UBS acknowledges the near-term headwinds in the food-to-go market, worsened by recent heatwaves, which have dampened like-for-like sales growth.
The group’s unscheduled first-half trading update signalled that full-year profits might fall slightly below 2024 levels, with first-half operating profit expected to decline compared to last year.
Reflecting these challenges, UBS has lowered its earnings before interest and tax (EBIT) forecasts by 5-9% across the next three years, projecting £185 million for 2025, rising to £210 million by 2027.
This revision, alongside a modest reduction in the terminal margin assumption, has led UBS to cut its discounted cash flow-based price target to 2,200p from 2,350p.
Despite the downgrade, UBS reiterated its 'buy' rating, citing the company’s strong return on capital employed and growth runway.
Investors will look to the upcoming half-year results on 29 July for further insight into Greggs’ recovery plans amid a tough market backdrop.
The shares, down 38% year to date, were up 1% on Wednesday at 1,750p.