It’s been a great first half of 2014 for shareholders in Greggs (LSE: GRG), with the pasty and pie specialist showing gains of 26%, while the FTSE 100 is flat year-to-date. Indeed, first-half results released this week showed that the company is making a surprisingly strong turnaround, with like-for-like sales increasing by 3.2% following a fall of 2.9% in the first half of 2013.
Furthermore, Greggs is continuing with a large refurbishment programme that will see 200 stores upgraded this year, while lower input cost rises are benefiting the bottom-line (as is a cost-cutting initiative) and helping Greggs to deliver improved levels of profitability.
However, how does Greggs compare to sector peers Thorntons (LSE: THT), Booker (LSE: BOK) and McColl’s (LSE: MCLS)?
Greggs
Having risen so strongly in the first-half of this year, it is perhaps of little surprise that shares in Greggs trade on a relatively high price to earnings (P/E) ratio of 16.7. Despite this, they continue to offer a respectable yield of 3.6%, although dividend growth prospects appear limited, with dividends per share forecast to increase by just 1.5% next year.
A key reason for this is fairly lacklustre earnings per share (EPS) growth both in the current year and next year, with Greggs expected to deliver bottom-line growth of just 4% in each year. With a relatively high valuation, it may be prudent to wait for a pullback before buying shares in Greggs, although clearly the company is performing far better than it was last year, as shown in its first half results.
Thorntons
Premium chocolate manufacturer Thorntons is forecast to grow its bottom line very quickly. After a few disappointing years, where the business made losses, it returned to profitability in 2013 and is expected to deliver EPS growth of 27% this year and 36% next year. Combined with a P/E ratio of 13.6, this equates to a price to earnings growth (PEG) ratio of less than 0.5, which is highly attractive. Indeed, Thorntons, although susceptible to difficult economic periods, appears to offer growth at a very reasonable price.
Booker
As with Thorntons, Booker is set to offer double-digit profit growth over the next two years, with it set to average 15% per year. However, unlike Thorntons, much of this growth appears to be priced in, with shares in Booker trading on a P/E of 20.5 despite them falling by just under 20% in 2014. While their PEG ratio isn’t particularly high at 1.4, it could be worth waiting for a keener price before buying in. With a yield of 2.7%, this appears to be the case for income-seeking investors, too.
McColl’s
By far and away the best value of the four companies here, McColl’s currently trades on a P/E of just 10. It also offers a great yield of 6% and is expected to grow EPS by 8% next year. Although market sentiment has not been favourable since it listed in February 2014 (shares are down 9%, while the FTSE 100 is down just 1%), McColl’s could turn out to be a good long-term play. It focuses on convenience stores, which has proven to be a relatively lucrative sector in recent years, and could offer above-average growth prospects over the medium term, too.