Member Info for Senator1

If the - was just a dash then in case of greggs I can see that is historic so while it gives a factual answer to question I do think you need to look at the pro-forma which for Greggs 2025 I think will be closer to 18.5%. I like return on capital employed as RoE is manipulated by leverage. RoCE is blunt but puts pre-tax profit in the context of all long term liabilities supporting the business including leases.

Minus returns on capital employed? No way for the names I know, like GAW, BME, GRG

What is this?

£32 given it delivered £1.37 underlying eps is 23x or earnings yield of 4.28%. Why on earth would anyone buy that yield for a risky asset when you can get 4.5% by buying government bonds. It only makes any sense if there is a material reduction in interest rates. Even with 11% growth in earnings the PEG is > 2. pro-forma it might do 5% thats a PEG of 4 at that price. Even at £16.5 the PEG is over 3 and thats what makes me nervous if we even get to the 2022 lows. All told this is probably best avoided for 2025. JPAM got this short right!

The shorts didnt move a single share. They just need some new blood. this is still down on the week, it aint over not by a long way. There is £1.9bn to play for. There are not so many big obvious targets on the UK market, that move as slow as thing does which is understandable as what they do is complex. So as a short you dont have to worry too much about the positive news.

Not by my forward eps estimate. Im holding 137.5 for 2025, same as last year. I think im being too optimistic as the new stores bring down profitability for a few years and the cost pressure on everything else is obvious. On my numbers it closed at 13.21 times so another £1.6 or so to go bringing it to £16.50/75 area which was the Oct 2022 lows. Until it gets there, it cant be a long. There is no support until it gets there.

And it trades at 7x

BME for one

208.1 closing low and 203 intraday low of last 10 years are drawing closer. If the institutions stay strong and increase their shorts I think its going to smash through these levels and break the 200 and then I think the shorts will start covering in a gentle way, no panic. They have made a lot of money on this in 2025 already. It will be fun to see what they do. They are doomed to make a lot of money, thats already decided and they wont consider themselves to be failures, only rich!

Greggs has 2 big issues. The LfL we were given at 1.7% for the 9 weeks of current year. That is very poor relative to the 5% odd last year. retailing has a lot of operating leverage and the throughput matters. That is a concern as we know costs are going up and so operating margin at 9.7% is under pressure and more so with new stores as they dont operate as efficiently in the first 2 years which they show in their slides.

the second big issues are the .4% headwinds to operating margin in 2026, increasing to 0.8% in 2027 because of the investment in the supply chain. that doesnt sound like much but brings a 9.7% operating margin to 8.9% on £2bn plus of sales is significant. Can they make that all up from fat in the organisation or price increases. Thats the question. You can see this historically in the falling return on capital employed which is going to go below 20% in 2025. Should it have a 14-15 PE with this backdrop or a 6.6% earning yield when you can get 4.5% without any risk and they will pay out only 50% of the 6.6%. I think the PE needs to go lower. Im not exactly sure where tobut certainly 12x, maybe even lower. There are much cheaper retailers doing 17% return on capital employed.

You said nothing on your r and g assumptions and I am going to guess that has made of 70% of your PV valuation is by far the 2 most important variables. You have also used a Wacc of 10% ignoring leases and as it has no non lease debt that means that is your cost of equity. I would therefore hope you used free cashflow after the lease payments but you didnt say on that. In a 4.5% risk free world, equity premium 5% you therefore assumed a beta of approx 1. Seems very light to me. The 5 year Beta is 1.4 which would give me a 12% cost of equity. But that all pretty irrelevant, what matters is your r and g and your free cashlow after lease payments in the TV calc (and that depends on the size of shop estate and mixture). If you are doing a DCF you cant do it on bank of envelope, it already borders on fantasy. You do it with your inputs, your wasting your time.

You said nothing on your r and g assumptions and I am going to guess that has made of 70% of your PV valuation is by far the 2 most important variables. You have also used a Wacc of 10% ignoring leases and as it has no non lease debt that means that is your cost of equity. I would therefore hope you used free cashflow after the lease payments but you didnt say on that. In a 4.5% risk free world, equity premium 5% you therefore assumed a beta of approx 1. Seems very light to me. The 5 year Beta is 1.4 which would give me a 12% cost of equity. But that all pretty irrelevant, what matters is your r and g and your free cashlow after lease payments in the TV calc (and that depends on the size of shop estate and mixture). If you are doing a DCF you cant do it on bank of envelope, it already borders on fantasy. You do it with your inputs, your wasting your time.

DCF is overrated. Most DCFs do a 5-10 year projection period and then run an annuity on the Terminal Value which makes up 70% of the valuation and this assumes holding discount constant and growth rate which is utter nonsense. Find me someone who knows what interest rates will be in 10 years to use in a DCF and told tell me to extrapolate it from the current yield curve. The one thing I know with certainty is that whatever number you come up with for r and g, both will be wrong. Comparative market based metrics are far superior as it accounts for the price people are putting money to work rather than some nice person with a spreadsheet modelling discretely for 10 years and then making up a TV discounting at r-g. you couldnt make it up!

B&M retail a broadline retiailer at 7x pro-forma PE, so 12x for Greggs, is that too much?

The stated diluted eps is wrong one to use as it includes one offs.

The underlying eps is 137.5. Assume with the cost pressures they hold this level which corresponds to 18.5% return on capital employed assuming £140 million spend on new shops. 137.5*12=1650.

I think this goes to £16.5-16.75 area which would give it a 12x PE and earnings yield just over 8%. At the moment it is a falling knife! Big drops are normally followed by further declines and so its an impossible buy at the moment.

SI gone up again yesterday. Gladstone, DE Shaw and Systematica all increased and the others didnt cover a single share. It's now 5.35% from 4.92%. Nobody will step in to a company losing £200m cash per annum. They have to work their own way out of this. They will live to fight another day because of the £700m they hold but the clock is ticking. Until they show tangible evidence this has changed i dont think there will be any panic to cover . There is £1.9bn of equity value to reduce and there are not many such obvious targets of that size.

1.7% LfL in first 9 weeks compared to 5.5% for FY 24, so existing managed shops opeating more than one year are likely not growing in volume terms when you account for inflation and particularly when you think that half the shops are open longer trying to get evening trade. They have more or less flagged that in 2025 they wont make their 20% return on capital employed it will be closer to 17.5% so they will do well to hold eps at last years level. They spend money on their infrastructure and then have to wait to get it back from more shops and later openings. Currently it is trading at 13x forward earnings or 7.7% earnings yield with lots of headwinds. Im not sure thats enough of a premium in a year when it will do well to hold the 2024 result. Its not a bad business its just the environment is tough and they are investing a lot to be ready for more shops and being forced to run faster to stay in the same place in earnings terms.

Thats to Quantas