Shares digital

Hutton and Reynolds ante up

by John Marshall

The Greggs finance director, Richard Hutton, and retail director Raymond Reynolds have invested half their 2007 bonuses in the company. Under the incentive scheme they will be awarded additional shares in three years provided earnings have hit certain targets. There will be no pay out unless earnings outgrow the retail price index (RPI) by 3% or more. The maximum pay out will occur only if EPS grow by RPI plus 10%.

Hutton, who joined the group in 1998, became finance director two years ago. Reynolds also joined the board then but has a longer-standing pedigree with the company, having joined in 1986.

Greggs is fortunate to be at the value end of the market, specialising in savouries such as sausage rolls and sandwiches. David Stoddart of Altium, a long-standing follower of the company, believes that the group is ‘one of the best value propositions in the high street’. That should enable it to outperform the competition during 2008, especially as it intends to refresh the range significantly. In the first ten weeks the group enjoyed 6.2% underlying sales growth.

However, rising ingredient costs may restrict profits growth this year, though Greggs has expanded by opening some 30 units each year and expects to open some 40 stores this year. Longer-term, the company believes there is scope to expand by a further 800 stores.

Greggs has enjoyed strong, almost uninterrupted growth since the shares were floated at 135p in 1984. The long-standing managing director Mike Darrington is about to retire. His successor Ken McMeikan, who was retail director of Sainsbury, was formerly CEO of Tesco Japan. McMeikan has specialised in convenience stores. Darrington will have ensured that he was supportive of the Greggs culture.

Reynolds was considered by some analysts to have been a candidate for Darrington’s position. That he bought shares suggest that he does not bear any grievance about losing out for the top job.

The market expects profits to grow modestly this year to £49.8 million. Earnings, which are forecast to be 331p, are expected to rise to 352p next year.At £46.48 the shares are on a PER of 14 times falling to 13.2 times next year.

The writer holds shares in this company