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  • Writer's pictureMark Watson-Mitchell

Greencore – beginning to show benefits of recent efficiency drive and new contracts, these shares are totally under-rated

Towards the end of February the £528m capitalised Greencore Group (LON:GNC) completed its second share buyback programme, taking out 15.4m shares at an average of 97.16p each over a four-month period.

That takes the food group’s buyback spend up to £50m in total since late May 2022, in its effort to value return those funds to shareholders.

Now, I am not a fan of share buybacks because I believe that firms with efficient management should be able to make a far better use of such funds.

Others will, no doubt, argue that the reduction of equity inevitably helps to increase share prices, if earnings continue to accrete.

However, after some tough remedial work in the recent efficiency drive it looks as though far better times are ahead for this group, suggesting that its shares are too cheap.

The Business

The Dublin-based business is a real ‘biggie’ in the convenience food sector.

With some 13,600 employees, it has over 16 manufacturing and 18 distribution centres in the UK.

It is the world’s largest fresh pre-packaged sandwich maker, making over 779m sandwiches and other food to go items each year.

The company supplies a range of chilled, frozen and ambient foods to some of the retail and food service customers in the UK.

It also supplies convenience and travel retail outlets, discounters, coffee shops, foodservice and other retailers.

Its 645 vehicles make over 10,400 ‘direct to store’ deliveries each day as it supplies all of the supermarkets in the UK, with over 1,600 of its products spanning across 20 categories.

Its UK convenience food categories, including sandwiches, salads, sushi, chilled snacking, chilled ready meals, chilled soups and sauces, chilled quiche, ambient sauces and pickles and frozen Yorkshire Puddings, as well as an Irish ingredient trading business.

Each year it manufactures some 132m chilled prepared meals, 245m bottles of cooking sauces, pickles and condiments, 155m salads, 439m Yorkshire puddings, 28m quiche, and 45m of chilled soups and sauces.

Sales Per Business and Region

On a sales per business basis its ‘Food To Go’ side had a £1.25bn turnover in 2023, representing 65.5% of group revenues, while ‘Other Convenience’ made up £661m, 34.5%.

On a per region basis the UK represented £1.83bn of sales, 95.8%, while Ireland made up the balance £80m, 4.2%.

Q1 2024 Trading Update

Towards the end of January this year the group announced a Q1 Trading Update for the 13 weeks to 29th December 2023.

Taking into account that the group has cut out a number of non-performing contracts, together with disposal activity, creating a 6% decrease impact, it actually showed a strong start for the current year to end September 2024.

CEO Dalton Philips stated that:

"I am extremely encouraged by the strong start to the year for our business.

Our manufactured like for like volume growth of 0.5% in the quarter, continued to outperform the market in the key categories in which we operate.

This performance has once again been supported by our outstanding operational service levels to ensure availability of products to our customers. 

Our focus as a team is to provide fresh and healthy foods to our customers and consumers each and every day.

Our progress as a business has been delivered through continued effective operational and commercial initiatives, as detailed in November, this has supported improved profit conversion and a strong profit outturn in the quarter.

We are committed to continuing to drive profitability through commercial discipline and are investing in several initiatives to develop a robust platform for future growth.

While we remain mindful of the seasonally important second half of the year, we are confident that the Group will deliver a full year outturn in line with current market expectations."

The Shareholders

The group has some 468m shares in issue.

Major holders include Polaris Capital Management (13.39 %), Rubric Capital Management (5.85%), Brandes Investment Partners (5.42%), Fidelity Management & Research (4.92%), Black Creek Investment Management (3.38%), Utah Retirement Systems (3.30%), Gartmore Investment (1.37%), Cobas Asset Management (0.59%) and Dimensional Fund Advisors (0.43%).

Analyst Views

There are some eight analysts that closely follow this group.

Taking a consensus average of their views it appears that they are estimating current year sales to end September 2024 of £1.89bn (£1.91bn), with adjusted operating profits of £83.1m (£76.3m), generating 9.3p (9.3p) in earnings per share.

For the coming year they look for £1.94bn sales, £92.7m in profit and earnings of 11.0p per share.

There are currently estimates out for some 13.5p of earnings per share having been pencilled-in for September 2026.

My View – totally under-rated

What I find interesting, perhaps giving some caution on value, is the analyst’s consensus average Target Price on the shares is only 113.5p – I think that they are far too conservative.

We will have to wait until 21st May to get the interims results for the six months to 29th March and the next corporate update on current year trading, showing through the combination of the group’s recent efficiency drive and its new contracts.

As I see it, this group is a real generator of value, it has a commanding position in its sector and its shares at just 112.90p, are under-rated and offering a bargain for new investors.



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