Great post. I only learnt about this company a couple days ago and when I looked at the current valuation I imagined it was a stable if not slightly declining business. The fact that it was, and frankly still under the hood, is a growing, vertically integrated retailer at 11x earnings was really surprising to me. I think this is, exactly as you say, a situation in which we don't even need to forecast (aggressive) growth for the valuation to make sense. With their products being cheaper priced than any "real" alternative it's hard to imagine them being hurt a lot in a worse economic conditions, let alone when compared to alternatives.
Going to do more research but I really struggle to see a strong bear case. Even if the expected increase in '26/'27 FCF is already calculated in, I don't see any problems with adding on for some time to come if the market doesn't appreciate the stock. Thanks again for the post!
To be honest, I would have expected stronger LFL growth in Q3. Q2 was affected by the heat, but Q3 is just as weak again. It was also unexpected today that there will be margin pressure in 2026. There will be no further profit growth in 2026, so DCA can continue until 2026. Growth will not return until 2027, and FCF will also start to flow again. So patience is needed here. The stock will not move in 2026.
You make fair points, which is also what the market is recognizing. But while profit might not move in 2026, free cash flow likely will. If profit remains equal but capex sharply declines, free cash flow increases. If the market starts to recognize that, we will share price appreciation. If not, we still get a nice dividend yield while waiting.
I covered the company two weeks ago and very much agree with your thesis. The market seems to have missed the additional ~£90 million in FCF expected from declining Capex intensity and continued productivity gains from automation and other upgrades to their IT systems. Let’s not forget that the business gained 50 bps of market share last year in the face of a soft food-to-go market that declined over 3%.
Great post. I only learnt about this company a couple days ago and when I looked at the current valuation I imagined it was a stable if not slightly declining business. The fact that it was, and frankly still under the hood, is a growing, vertically integrated retailer at 11x earnings was really surprising to me. I think this is, exactly as you say, a situation in which we don't even need to forecast (aggressive) growth for the valuation to make sense. With their products being cheaper priced than any "real" alternative it's hard to imagine them being hurt a lot in a worse economic conditions, let alone when compared to alternatives.
Going to do more research but I really struggle to see a strong bear case. Even if the expected increase in '26/'27 FCF is already calculated in, I don't see any problems with adding on for some time to come if the market doesn't appreciate the stock. Thanks again for the post!
You're welcome, Danny, I'm glad you saw value in my post.
Greggs stock make me believe the market is extremely short sighted. Good summary, thanks
You're welcome, Ole. Do you own any Greggs (or planning to)?
Just a tiny watching position. Usually build up positions really slowly, but looks quite attractive now imo
To be honest, I would have expected stronger LFL growth in Q3. Q2 was affected by the heat, but Q3 is just as weak again. It was also unexpected today that there will be margin pressure in 2026. There will be no further profit growth in 2026, so DCA can continue until 2026. Growth will not return until 2027, and FCF will also start to flow again. So patience is needed here. The stock will not move in 2026.
You make fair points, which is also what the market is recognizing. But while profit might not move in 2026, free cash flow likely will. If profit remains equal but capex sharply declines, free cash flow increases. If the market starts to recognize that, we will share price appreciation. If not, we still get a nice dividend yield while waiting.
Right. But market goes for next 2 quarters and will also put focus on the income statement (rev, margins, EPS) instead of cf and future growth
True, but I am willing to be patient. The market being short-sighted only makes this an opportunity for long-term oriented investors.
I covered the company two weeks ago and very much agree with your thesis. The market seems to have missed the additional ~£90 million in FCF expected from declining Capex intensity and continued productivity gains from automation and other upgrades to their IT systems. Let’s not forget that the business gained 50 bps of market share last year in the face of a soft food-to-go market that declined over 3%.