Peel Hunt upgraded its rating on Greggs PLC (LON:GRG) to ‘hold’ from ‘reduce’ and raised its target price to 1,300p from 950p after the bakery chain raised its pre-tax profit outlook for 2018.
In a trading statement on Tuesday, Greggs said total sales gained 9% in the eight weeks to November 24 with like-for-like sales at company-managed shops up 4.5%. It now expects full-year profit before tax, excluding exceptional charges, to be at least £86mln.
READ: Greggs raises 2018 pretax profit view as sales climb
Peel Hunt said it has to “own up to getting too carried away” with the company’s slowdown in late Spring/Summer, which was “clearly no more than a blip” and probably a reaction to the unusually cold weather during Easter.
“The patchy late Spring is now a distant memory and we’d own up to over-reacting to it; this is clearly a very consistent performer and with a decent upgrade today it’s clear that our negative stance is wrong,” Peel Hunt said.
Since then, the company’s performance has picked up despite tough comparatives and lower footfall, the broker noted.
“Therefore we have to take our medicine on the recommendation and upgrade back to Hold,” it said.
“At first glance we were tempted to go further, but the valuation at the shares’ current levels doesn’t appear to have much upside.
“The cash generation however will be highly attractive to some and there are many worse places to be if the top down view is a nervous one.”
Shares jumped 11.8% to 1,379p in late morning trading.