Berenberg upgrades Greggs to 'buy', sees significant expansion potential

Bakery chain Greggs was upgraded to 'buy' from 'hold' by analysts at German broker Berenberg on Thursday, saying that the company has plenty of room for further growth and that its solid balance sheet may allow it return capital to shareholders soonr than expected.

Greggs reported its first-half results last week, and following presentations to Berenberg analysts the analysts were confident it was in a strong position to deal with the "challenging" consumer environment.

Berenberg also raised the firm’s target price from 1020p to 1300p .

Strong underlying momentum has been maintained by Greggs in recent years, and the analysts added that it has further options at its disposal in order to secure further growth.

"While the vast majority of its stores are now in a food-on-the-go format and the product mix has shifted considerably, we feel the company still has a number of levers it can pull to drive further lfl growth," Berenberg said in a research note sent to clients.

Since 2015, Greggs had already expanded its number of shops from 1,698 to 1,806, and projected that it could move above 2,000 in the next few years.

"Given the success of its shift to non-shopping locations, the relatively low store coverage in the southwest and Northern Ireland, and the number of shops its competitors have, we think that Greggs has the potential to expand its store estate substantially in the medium term," the bank added.