Greggs boss is quick off mark with changes

By JOANNE HART
Updated: 17:17 EST, 7 March 2009

Efficiency move: Boss Ken McMeikan is rebranding the Bakers Oven outlets as Greggs

Greggs is one of Britain's best-known bakers. Founded in Tyneside in the Thirties, the company cut its teeth during the deepest recession of the 20th Century and has since lived through several economic peaks and troughs.

The company has grown to 1,400 shops, selling a combination of savoury goods such as sausage rolls and pasties, sweet treats such as doughnuts, sandwiches and, of course, bread, though this accounts for little more than ten per cent of group sales these days.

Greggs is a particularly interesting investment option in today's economic climate.

First, most of its products are not just cheap, but cheaper than those of the competition. Consumers who once thought nothing of buying a sandwich at Marks & Spencer or Pret A Manger may now prefer to spend half as much money at Greggs. Meanwhile, those who have always shopped at Greggs are likely to continue to do so because the food is considered to be of reasonable quality and extremely good value.

Second, Greggs appointed a new chief executive, Ken McMeikan, last summer. He has wasted no time before reviewing the business and finding ways to make it more effective.

McMeikan's pedigree is impressive. He spent 14 years at Tesco, where he helped to start the Tesco Metro division. He was then hired by Sainsbury's chief executive Justin King to help turn round the company. As retail director, he was heavily involved in the recovery programme, widely considered to be a great success. Since joining Greggs, McMeikan has initiated a number of changes.

The company also owns the Bakers Oven brand, but these shops are going to change their name to Greggs. Bakers Oven stores have in-house cafes and bread ovens, so the switch to the Greggs name will give customers a more rounded experience and help the group to reduce buying and advertising costs.

McMeikan also intends to open more stores, not just on the High Street, but increasingly in places such as business parks, airports and other similar locations. This will expose the group to different types of customers, not just High Street shoppers.

Also, he is closing down the group's operation in Belgium, as the Belgians did not respond well to Greggs' produce.

The company reports 2008 figures on Tuesday and analysts expect pre-tax profits of £45million including a £3.5million hit from the Belgian closures. Underlying profits will show little change from 2007 because the business was hit last year by rising energy and food prices. These pressures should be less marked in 2009, particularly during the second half.

In the meantime, Greggs has plenty of cash and the dividend for 2008, payable in a couple of months' time, is expected to rise from 140p to 149p, putting the shares on a yield of more than four per cent.

•• Midas verdict: Greggs shares are 3653p each. That may seem off-puttingly expensive, but McMeikan has pledged to deliver a share split at the annual meeting in May. This will probably mean that shareholders will receive ten new shares for every one they hold, taking the price to a more manageable level of about 350p.

Investors who want to take advantage of this should buy now and hope the price rises before and after the change in share structure. This business has plenty of cash and McMeikan is doing all the right things. The company is committed to generous dividends, the business should continue to do well and so should the shares.

Profits lost in translation as RWS shares take a beating

Midas recommended RWS nine months ago when the price was 380p. Today it is 240p. This is extremely unfortunate, particularly as the business has gone from strength to strength since last year.

Results for the year to September 30 showed pre-tax profits rising 25 per cent to £13.7million while the dividend increased by 20 per cent to 10.4p.

Brokers predict further strong growth this year, with profits forecast to rise to £15million and the dividend expected to rise to 11.95p, putting the shares on a yield of five per cent.

RWS helps companies translate technical documents, particularly patents. It works for major companies around the world, such as AstraZeneca in the UK, Sanofi Aventis in Europe and American phone group Motorola.

The group's customers are involved in industries such as drug manufacture, defence, chemicals and electronics. They need to produce patents in a host of languages every time they make a new discovery - each year about one million patents are published. The market is expected to continue to grow despite the recession as most companies are extremely reluctant to cut back on research, which they consider to be the lifeblood of their business.

RWS is also benefiting from the weakness of the pound as most of its costs are in sterling and most of its earnings are in euros, dollars and yen.

•• Midas verdict: Buying a share and watching the price fall is a miserable experience, but brokers firmly believe that this stock is worth well over 400p.

Shareholders who bought last year should sit tight. Meanwhile, new investors might consider dipping in at these levels.