Bottom Feeding - GRG, CJT, and HWDN

This week we’re looking at another two companies listed on the LSE (GRG and HWDN), and one listed on the TSX (CJT).

Greggs (GRG.L)

GRG is a popular bakery chain in the UK with over 2,600 stores, offering a range of freshly baked and freshly prepared food-on-the-go products.

In the year ending 28 Dec 2024, revenue totalled £2,014.4m (FY23: £1,809.6m), gross profit £1,243.6m (FY23: £1,099.1m), operating profit £209.4m (FY23: £192.3m), and net profit £153.4m (FY23: £142.5m). It should be noted that the operating and net profit included £14.1m of exceptional income from the disposal of the company’s Twickenham bakery site, and the reversal of certain provisions.

Total equity at 28 Dec 2024 was £570.5m, with assets predominantly comprising PP&E and right-of-use assets associated with building leases. Excluding lease liabilities, GRG had a net cash position of £125.3m.

Net cash generated from operations was £310.9m (FY23: £310.8m), which it used, among other things, to acquire £230m (FY23: £189.5m) of PP&E, and pay out £106.8m (FY23: £60.8m) in dividends to shareholders. Note: this included a special dividend of £40.7m paid in 2024.

Market capitalisation: £1.8bn

Valuation: The shares currently offer a 8.5% earnings yield, 5.9% dividend yield (3.7% excluding special dividend), and 8.6% free cash flow yield (based on maintenance capex of c.5% of revenue).

Reason: Fears the company won’t be able to mitigate the impact of upcoming employer national insurance and minimum wage rises, currently estimated to cost c.£45m in 2025, and >£50m in 2026.

Interest level: moderate - I’d like to see the price come down a little further to allow for a potentially slower growth rate in future as the UK market nears saturation.

Cargojet (CJT.TSX)

CJT is a Canadian cargo airline, operating flights both within Canada and internationally.

In the year ending 31 Dec 2024, revenue totalled CAD$1,000.8m (FY23: CAD$877.5m), gross profit $225.8m (FY23: $138.1m), operating profit $135.2m (FY23: $67.6m), and net profit $108.4m (FY23: $37.3m).

Total equity at 31 Dec 2024 was $737.7m (FY23: $784.5m), with assets predominantly comprising PP&E. Net debt (excluding lease liabilities) amounted to $650.1m (FY23: $648.3m).

The company generated net cash from operations of $328.6m (FY23: $191.9m), which it used, among other things, to purchase a net $144.9m (FY23: $139.7m) of PP&E, buyback $127.7m (FY23: $35.5m) worth of shares, and pay $26.7m (FY23: $19.7m) in dividends.

Market capitalisation: CAD$1.45bn

Valuation: The shares currently offer a 7.5% earnings yield, 12.7% shareholder yield (dividends + buybacks + debt repayment), and 10.4% free cash flow yield.

Reason: Primarily fears around the impact of tariffs on global air cargo demand.

Interest level: moderate - not sure how resilient the company would be in a major downturn.

Howden Joinery Group (HWDN.L)

HWDN is a trade kitchen and joinery supplier operating in the UK, France and Belgium.

In the year ending 28 Dec 2024, revenue totalled £2,322.1m (FY23: £2,310.9m), gross profit £1,431.1m (FY23: £1,403.9m), operating profit £339.2m (FY23: £340.2m), and net profit £249.3m (FY23: £254.6m).

Total equity at 28 Dec 2024 amounted to £1,128.7m (FY23: £978.4m), with assets spread between PP&E, right-of-use assets, inventories, receivables, and cash. The company had a net cash position of £343.6m (FY23: £282.8m), excluding lease liabilities.

Net cash generated from operations was £400.1m (FY23: £372.3m), which it used, among other things, to spend £122.0m (FY23: £118.9m) on PP&E, and pay £115.9m (FY23: £114.1m) in dividends.

Market capitalisation: £4.21bn

Valuation: The shares currently offer a 5.9% earnings yield, 2.8% dividend yield, and 4.9% free cash flow yield.

Reason: The business has been treading water over the last couple of years due to the macroeconomic environment and this has been reflected in the share price. Outlook for 2025 doesn’t look great due to continued inflationary pressures and a general market contraction.

Interest level: moderate - continued investment through this downturn should give the business a solid rebound, but I’d like to see the share price come down a little further.

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