Will Pret a Manger’s IPO be a tasty treat for the City?
There are few better ways to start the morning than with a bacon sandwich. Outside Morning Wire‘s offices on Cheapside, a coterie of cafes and sandwich shops open at 6am to sate City workers’ cravings for the greasy, umami-rich bap.
There is often a line stretching out the door at Greggs, which charges £3 for their generously-filled offering, with or without brown sauce. But things are a little quieter at the nearby Pret, whose own bacon sandwich will set you back £4.50 – a 50 per cent premium.
Pret’s steep prices have been remarked upon before. After suffering losses of as much as £343m in 2020, chief exec Pano Christou decided that price hikes were the best way to hammer the company’s finances back into shape, alongside cutting more than 3,000 jobs and closing dozens of outlets.
Plenty of Pret punters were upset with the hikes – at one point forcing a climbdown from the cafe over its plans to double the cost of its monthly coffee subscription (which is why I’m still signed up).
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But the strategy appears to have paid off, with the company’s 2023 accounts recording an adjusted core profit of £166m – something which will help the firm pay down its heavy debts of nearly three quarters of a billion pounds.
Pret’s owners are now reportedly eyeing options ahead of a potential IPO. But will City investors be lured in by Pano’s pain au chocolats and tuna sandwiches?
Pret’s cheaper Cheapside rival, Greggs, is currently trading at a market cap of £2bn – around 1x sales or about 11x its pre-tax profit. The stock had enjoyed a stellar run since the pandemic, but has shed about a third of its value since the start of the year after its margins fell short of investor expectations, a result it put down to “tough” macroeconomic conditions.
Given Pret’s smaller sales and profits, it’s hard to see how the firm will attract a higher valuation than the £1.5bn that European investment group JAB Holding paid for it in 2019.
Pret will likely point to the opportunity for major overseas expansion, with a growing presence in France and the US, to whet investor appetites. But like its bacon sandwiches, City analysts may find its IPO is overpriced.