Canaccord Genuity reiterates 'hold' rating on Greggs following interims

Analysts at Canaccord Genuity reiterated their 'hold' rating on British bakery chain Greggs on Friday following the group's recent interim report.

Canaccord said most of the changes to its estimates for the group were related to its introduction of IFRS 16 but also changed its cash flow forecasts in order to reflect Greggs's higher planned capital expenditures after it brought forward plans to reinvest in its manufacturing site at Balliol Park, Newcastle.

The Canadian broker said Greggs's move to IFRS 16 will see pre-tax profits reduce by £4.2m for 2019, something it said it had already factored into its profit and loss forecasts.

While Canaccord kept its 2019 full-year pre-tax profit estimate for Greggs unchanged at £105.5m, it lowered its 2020 estimate to £113.3m from £113.6m and raised its 2021 estimate to £125.1m from £122.6m.

As far as the project at the Newcastle site was concerned, Canaccord said the efforts to increase both the production and frozen storage capability for its savoury pasties would require a total of around £90.0m to £100.0m for 2019 and it assumed the work would require similar levels for 2020 and 2021. 2018 CAPEX was £73.0m, but while Canaccord said it was "a step-up in investment", the analysts acknowledged that it had been prompted by "strong trading".

"Looking forward, the quarterly prior-year trading get[s] progressively tougher which will make the prospect of further trading surprises less likely," said Canaccord, which also reiterated its 2,050p price target.