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Greggs (LSE: GRG) shares went public on the London Stock Exchange in 1984. And despite the Orwellian associations of that year, the journey since has been anything but dystopian. In fact, it’s been a remarkable success story.
The much-loved bakery chain listed with a market cap of £15m. Today, that value has grown to £1.86bn, making it a FTSE 250 constituent.
Some data from the initial public offering (IPO) is hard to come by. But we know that 100 shares bought back then would have turned into 1,000 due to a 10-for-1 stock split in 2009. According to my calculations, those shares bought for around £1.35 each in 1984 would now be worth just over £18,000!
Additionally, I estimate the shares would have served up approximately £7,000 in dividends so far. And this year, Greggs is forecast to pay out another 68p a share.
Challenging times
Greggs has grown from an estate of around 260 shops in 1984 to more than 2,600 today. Long term, management is aiming for over 3,500.
Last year, the company reported £2bn in annual sales for the first time. However, the share price is down 34% this year. This is due to a number of factors, including slowing growth and weak consumer spending.
On top of this, Greggs implemented price increases to mitigate the impact of higher wage and National Insurance costs. This sparked fears that it could lose its reputation for value among customers.
In my own experience, this is a risk. I used to grab breakfast from McDonald’s occasionally. But when the price of two hash browns — essentially just thin strips of fried potato — shot up to about £5 when inflation went bonkers in 2023, I stopped bothering.
Perhaps others felt the same, helping Greggs overtake McDonald’s as the UK’s top breakfast destination in early 2024. Still, it needs to carefully balance its value proposition with maintaining profit margins.
GLP-1 drugs
I was a Greggs shareholder until a few months ago, but I sold due to slowing growth and a tough economic backdrop.
Another worry I have is the potential impact of GLP-1 weight-loss drugs like Wegovy. These have been shown to drastically reduce cravings for the type of baked goods and sugary treats that Greggs sells.
Last week, I was talking to a woman who was taking Ozempic. She said it had fundamentally altered her eating habits, to the extent that she hadn’t had the desire to eat anything from local takeaway shops (including Greggs) for months.
Approximately 64% of adults in England are classified as overweight or living with obesity. Therefore, the addressable market is in the tens of millions, posing a possible problem for Greggs.
Moreover, while current weight-loss treatments are injected, a daily pill now looks to be on the way, probably expanding the market even further.
Of course, this threat is just anecdotal/theoretical for now. And Greggs has a great record of adapting its menu to include healthier options. But I worry about growth in the coming age of GLP-1 medications.
That said, the stock does look cheap right now. It’s trading at just 12 times earnings and offering a 3.8% dividend yield.
So, for those who think my concern about anti-obesity drugs is overblown, Greggs shares could still be worth considering.
