After pastygate, could Greggs now be facing a pig of a problem?
That's the view of Jonathan Pritchard at Oriel Securities, who points to reports that pig production is becoming increasingly uneconomic, what with poor weather causing the price of feed to rocket and prospective EU legislation next year.
With many pig farmers deciding not to carry on, that would lead to a fall in supply and price inflation. That would be bad news for Greggs, he said, given its "disproportionate reliance on pork products" - presumably all those sausage rolls and bacon butties. In a sell note he concluded:
Earnings growth will be very pedestrian here, which doesn't justify the premium to the sector and the market.
Coincidentally Clive Black at Shore Capital has issued a note taking the exact opposite view, repeating his buy recommendation and saying the business has considerable control over its own destiny:
Conservatism runs through the fundamental control of the business, making for a strong balance sheet with few worries over pension responsibilities. Indeed, year-end cash balances perpetually feature, supporting the stock rating in our view. Greggs is embarking upon a period of accelerated new space growth, augmented by potentially exciting complementary retail streams, serviced by a demonstrably more modern and fit-for-purpose supply chain.
We anticipate good earnings and dividend growth for the foreseeable future and, should like for like volume ever persist, potentially significant margin upside.
For the moment the optimists are holding sway: Greggs is up 2.3p at 489p.
