Market news and an update from Greggs.
Market News
US equity markets held steady last night – S&P 500 (flat); Nasdaq (+0.7%) – helped by large cap technology. However, this morning in Asia, markets moved lower: Nikkei 225 (-1.6%); Hang Seng (-2.8%); Shanghai Composite (holiday). After yesterday’s fall, the FTSE 100 is currently little changed at 7,507.
The US Federal Reserve will probably need to raise rates once more this year and then hold them at higher levels for some time, Loretta Mester said. Earlier, Michael Barr said rates are “likely at or very near” a sufficiently restrictive level, while Michelle Bowman reiterated her view that multiple hikes may still be needed. JPMorgan’s Marko Kolanovic said investor hopes for an end to rate hikes and a soft landing are similar to sentiment ahead of the 2008 financial crisis. The 10-year Treasury currently yields 4.70%. The dollar strengthened and gold slipped back to $1,823 an ounce, the lowest in almost seven months. Brent Crude fell back to $90 a barrel as interest rate concerns overshadow supply tightness.
UK retailers cut food prices by 0.1% in September, bringing shop-price inflation to a one-year low of 6.2%, the British Retail Consortium said. Sterling trades at $1.2082 and €1.1534.
Many in Britain are cooling on the merits of Quantitative Easing (QE), as its cost to taxpayers and other side-effects become apparent. Now the Bank of England is winding down the program, QE is taking the blame for stoking the worst bout of inflation in four decades, deepening inequality and forcing the Treasury to fund the scheme’s losses. As a result, it’ll be more difficult for the BOE to pull the QE lever if the economy sours again.
Taiwanese companies are helping Huawei build infrastructure for a secret network of chip plants across southern China, a Bloomberg News investigation found. At a time when China threatens Taiwan regularly with military action, the island’s tech companies may be helping US-sanctioned Huawei develop chips to effectively break an American blockade.
Source: Bloomberg
Company News
Greggs has this morning released its Q3 trading update, which highlights continued strong trading and inflation beginning to ease. The group also reiterated its full-year expectations. In response, the shares have been marked down 3% in early trading.
Greggs is the leading bakery food-on-the-go retailer in the UK, with more than 2,400 outlets, of which more than 480 are franchised shops operated by partners in travel and other convenience locations. The emphasis of the group’s estate expansion is on those locations where performance has proved to be most robust, such as Retail Parks, Roadside, and Petrol Filling Stations. Almost half of shops provide delivery services to catchments served by Just Eat and Uber Eats, while the longstanding partnership with Iceland offers Gregg’s products for home baking.
In the 13 weeks to 30 September 2023, total sales grew by 20.8%. Like-for-like sales growth in company-managed shops was 14.2%. Growth was helped by increased customer visits, reflecting ongoing development of evening trading (representing 8.8% of company-managed shop sales) and digital channels and loyalty programme through the Greggs App (13.1% of company-managed shop transactions).
Market insight data (Circana, August 2023) confirms that Greggs continues to grow its share of the food-to-go market and has maintained its leadership positions in customer satisfaction and value-for-money ratings.
The group has a strong balance sheet, with net cash of £139m at the last balance sheet date, which is supporting capital expenditure, expected to be c. £200m in 2023. The group continued to expand its estate, with 82 net new shops opened in the year-to-date (144 openings less 62 closures). The group expects between 135 and 145 net shop openings in 2023 and around 40 relocations to better premises within existing catchments. There is a strong pipeline ahead for 2024 and the group sees a clear opportunity to expand its UK estate to at least 3,000 shops.
Greggs is also developing further capacity to support its significant growth ambitions. Investment in the supply chain is progressing well, with a fourth production line to be commissioned in Newcastle in the coming weeks, while work is also progressing well to expand the group’s logistics capacity.
As expected, the rate of cost inflation has eased as the group annualises the significant commodity-led increases experienced in 2022. The group has strong product and promotional plans for the fourth quarter and the extension of its delivery service will make Greggs more accessible. Although the company acknowledges the uncertainty in the economy as a whole and the very strong comparative performance of the business in the fourth quarter of 2022, the board expects the full-year outcome to be in line with its previous expectations.
Source: Bloomberg