It’s no surprise to see the Greggs (LSE: GRG) share price moving higher today. Yesterday, the UK government announced further significant lifting of lockdown arrangements. In June, non-essential retailers will be allowed to throw open their doors once more if they adopt Covid-safe practices, such as physical-distancing.
It seems just a matter of time before we’ll be able to load up again with the bakery and food-to-go retailer’s sticky treats and caffeine fixes!
Still closed for the time being
But the government hasn’t mentioned restaurants and cafes. All of Greggs’ more than 2,050 shops have been closed since 24 March when the UK imposed its coronavirus lockdown. The government has allowed takeaway outlets to open. But so far, Greggs has chosen not to participate.
Chief executive Roger Whiteside left a note on the company’s website explaining that the firm is working hard to get up and running again. Initial trials behind closed doors aim to test “a number” of new operational safety measures that will enable social distancing. Greggs is looking at the possibility of using “a number of channels”, such as delivery via Just Eat, Click & Collect and walk-in customers.
At 1,797p, the share price is still almost 30% down from its peak in February. But City analysts have pencilled in a robust recovery in profits for 2021. And that feels about right to me. I can’t imagine the stores remaining closed into next year. And there must be pent-up demand for the company’s products.
A compelling growth story
Aside from the coronavirus crisis and the temporary bolting of the firm’s doors, it’s worth reflecting on the stock’s attractions. I pointed out in an article at the beginning of March that “the story behind Greggs is one of robust expansion driving prodigious cash flow and escalating shareholder dividends.”
To me, the share would be a great addition to a long-term-focused retirement portfolio. And I’d be keen to buy while the share price remains depressed because of the temporary hiatus in revenues caused by the crisis. I think with recent government announcements, we have something of a road map back to a more normal lifestyle. And to me, Greggs looks capable of being a big part of that for many people.
We can get some idea of how well things may proceed for Greggs when it starts trading again by looking at the competition. For example, KFC has reopened some of its drive-throughs and cars are queuing around the block. Chip shops and other takeaways opened recently and their queues have been enormous – exaggerated by the 2-metre social-distancing rules.
My guess is that the demand for Greggs’ offering will be equally robust. And looking back 10 years from now, we may be glad we took the opportunity to pick up a few of the firm’s shares while the outlook remained uncertain.
