UK Edition
Questor: hold on to Greggs for its growth and resilience in uncertain times
Our “Follow the Money” column usually focuses on the activities of fund managers but we are also interested in how other professionals invest their clients’ money.
This week we look at a share that is held on behalf of her clients by Elissa Bayer of Investec Wealth & Investment. The firm manages portfolios for individual investors who are often older and wealthier than the general population.
You might expect this to cause Ms Bayer to seek income-producing investments but she said many of her elderly clients could be expected to live so long that they could not afford to neglect capital growth, especially as they might have the need for a substantial sum if they had to go into a care home.
Investec uses a mixture of funds and individual shares in its clients’ portfolios and among the latter it currently holds Greggs, the fast food chain famous for its sausage rolls.
Ms Bayer said the firm was benefiting from a refurbishment programme and attempts to tap into the growing trend towards takeaway breakfasts.
She said: “Greggs is probably best known for its sausage rolls and sandwiches, which are less upmarket than some rivals’ offerings. However, the stores are being revamped, and while this has put up costs the recent trading update was strong, with like-for-like sales growth higher than anticipated.
"There is also a big programme to open new stores – with nearly 1,700 outlets, coverage is good and increasing.” Ms Bayer added that the company had launched “a successful £2 breakfast offering, which undercuts Costa Coffee for the same items”.
She accepted that Greggs was affected by the rise in the minimum wage and that most companies in the sector were highlighting possible uncertainty in the second part of the year. But she added: “Takeaway food and rolls seem pretty resilient – consumers are prepared to pay for what they want. This is a good stock to hold in the food retail sector.”
The shares are also held in the Standard Life UK Smaller Companies fund, and the investment trust of the same name, which are run by the highly regarded Harry Nimmo.
Andrew Hunt of Standard Life Investments told Questor: “Greggs is a strong and much-loved brand delivering consistent sales growth thanks to product innovation, especially its success in pushing into areas such as healthy eating options, breakfast choices and hot drinks.
“The company’s managers have executed well, delivering a strong balance sheet and consistent growth, and have recently improved their sustainability credentials. Greggs is also well into a programme of improving its IT and logistics capabilities, which should further drive improvements and cut waste.”
Questor tipped the shares as a long-term hold last year when they were trading on a price to earnings ratio of 18. The rating is now 17.6 and we are happy to reiterate that view.
Questor says: hold
Ticker: GRG
Share price at close: £11.02
Update: Kromek
Readers who followed our advice to buy shares in Kromek, the supplier of advanced radiation detectors, in March at 27p and saw them gain 26pc to 34p over the next few days may be wondering why they have fallen back below the price at which we tipped them. We reiterated our buy stance at 29.75p last month.
But far from signalling problems at the company, the share price fall offers another opportunity to buy into this unusual firm – which is based in County Durham but whose customers include the US government – at an attractive price.
Gervais Williams of Miton, who holds Kromek in several of his portfolios, said nothing had changed at the company and that the current share price weakness reflected a “buyers’ strike” in the market for smaller and medium-sized stocks, partly as a result of pre-election nervousness.
He said share prices often jumped when investors became enthusiastic about a stock, only to lose steam when there were no immediate announcements to confirm the story.
“Nothing has changed at all,” he said. “And just look at the valuation difference between stocks such as Kromek and better known names such as Fever-Tree and Boohoo. You bet I’m happy to hold it.”
Questor says: buy
Ticker: KMK
Share price at close: 26.62p