Greggs outlines growth ambitions and Hotel Chocolat beats expectations

“OPEC’s decision not to lift production volumes gave oil prices a lift into Tuesday, helping the FTSE 100 to solid gains as index heavyweights BP and Shell gushed higher,” says AJ Bell investment director Russ Mould.

“This followed a tech-led sell-off in the US overnight as investors turned away from the likes of Apple, Amazon and, perhaps most notably, Facebook which had a pretty terrible day on Monday.

“First it faced damaging allegations from a company whistleblower then it saw a lengthy outage on its eponymous social media app as well as its Instagram and WhatsApp platforms.

“After Beijing took its own technology sector to task in 2021, could 2022 see Washington follow suit with tighter regulation?

“A cocktail of risks is brewing for the US market around not just the tech sector but also the debt ceiling and stalled spending plans as political in-fighting continues.”

Greggs

“Greggs is going global. The firm’s reinvention from a pretty tired discount baker to a refreshed food-on-the-go outlet with strong vegan credentials is testament to its management’s agility and poise and even as it contends with the aftermath of the pandemic and supply chain issues, it is not standing still.

“Looking through the current turmoil, Greggs has ambitions to be a much larger business in five years’ time and you couldn’t accuse its plan to double turnover by 2026 of being in any way cautious.

“While some of this will be delivered by new openings, including its first overseas sites since a modest experiment in Belgium in the noughties, Greggs is also looking to expand opening times into the early evenings too, supported by an enhanced delivery offering.

“By getting more out of existing sites, the company hopes to boost profitability and cash flow and ultimately translate this into a more generous portion of dividends for shareholders.

“Sometimes you have to take risks in business to get ahead and Greggs has looked at a somewhat hollowed out central London and spied a big opportunity, with plans to take advantage of depressed property costs by expanding its footprint in the capital.

“It’s when times are tough that management really earn their corn and despite seeing shortages on a daily basis and facing inflationary and staffing pressures it is impressive that the company still felt able to raise profit forecasts for 2021.”

Hotel Chocolat

“It’s amazing how a business selling sweet treats and posh hot chocolate machines has become a digital sensation, but Hotel Chocolat has done just that. Operating in a highly commoditised market, the business has found its niche and done some clever things to drive sales.

“The company’s tasting club has two-fold benefits. First, it provides a steady stream of income. Second, it is a way for the business to test new products and get paid for doing so.

“The subscription model also extends to monthly surprise boxes of chocolates and drink refills for its fancy machines. These are clever moves as they create a recurring revenue stream and regular interaction with the customer should, in theory, drive loyalty.

“Hotel Chocolat was wise to go strong on the ethical messaging early on in its career as that now resonates with the modern shopper. And having a good online platform meant it was able to thrive during the pandemic without physical stores.

“This business has been incredibly successful and now Hotel Chocolat is spreading its wings overseas.

“In recent years it has invested heavily in additional production capacity and that trend continues with a recent £40 million fundraise.

“It is interesting to see the company decide not to pay a dividend in favour of putting spare cash back into the business to support future growth. Not many companies would take that bold move, even though it might be the best decision.

“Hotel Chocolat comes across as very confident about the future, which is a very different message than a lot of other companies battling supply chain issues and labour shortages. In an inflationary environment, companies with high gross margins are in a much stronger position to cope with higher costs and Hotel Chocolat has margins above 60% and growing.”

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