Greggs (GRG) has surged roughly 18% over the past month, fuelled by a strong first-half performance and a wave of renewed investor confidence in the bakery chain.
The company reported better-than-expected profits for the first half of 2026, covering the period to 27 June, surprising markets with the scale of its earnings recovery.
Pre-tax profit climbed 19.7% to £76m, while revenue rose 7.2% to £1,101.5m, signalling robust underlying demand across its growing store network.
Perhaps most striking was the rise in operating profit, which jumped 22.9% to £86.5m, reflecting tight cost discipline in a difficult consumer environment.
Like-for-like sales grew 2.1%, supported by new store openings and expanded grocery partnerships that have helped broaden the brand’s reach beyond the high street.
Management pointed to a modern menu overhaul as a key driver of the turnaround, with new items such as a chicken roll and matcha drinks resonating strongly with younger customers.
Healthier additions like a chicken Caesar salad have also helped the chain cater to shifting consumer tastes, broadening its appeal beyond its traditional customer base.
The brand’s first international outlet at Tenerife South Airport has delivered a “promising start,” offering the company a low-risk way to test appetite for overseas expansion.
On the operational side, Greggs joined forces with Boots, Marks and Spencer, and the Met Police to tackle shoplifting, a collaborative move designed to protect margins across its estate.
Despite the recent share price rally, Greggs stock remains down roughly 38% over five years, leaving considerable room for recovery if earnings continue to compound at the current rate.
The shares currently trade at a forward price-to-earnings ratio of around 14.2, below the company’s own historical average and that of comparable retail peers, making it attractive to value-focused investors.
Using a discounted cash flow model, some analysts estimate the shares could still be undervalued by as much as 51%, suggesting expectations for longer-term earnings growth remain high.
For income investors, the dividend picture is equally appealing, with the company reiterating its 19p per share interim dividend and a full-year 2026 payout expected to remain at 69p per share.
That implies a trailing yield of roughly 3.7%, supported by a payout ratio of around 53%, leaving meaningful headroom for modest increases if cash flow holds up through the second half.
The core risk to this thesis centres on UK consumer confidence, with any renewed cost inflation or softening in discretionary spending potentially squeezing the margins that have driven this recovery.
For investors seeking a combination of a reasonable earnings multiple, a solid income yield, and a clearly articulated growth roadmap, Greggs looks like a sensible addition to a diversified UK income portfolio.
