06.02.2025
Just two months ago the shares of this £807m-capitalised leading convenience food manufacturing group were trading at 225p, yesterday they fell back to just 183p, however this morning they have shown some good price recovery.
Whether that was in reaction to the unsettled ‘Trade Tariff’ markets or was it possibly following the group yesterday holding a Capital Markets Event for analysts and institutional investors, its first since September 2019.
Whatever may have been the real reason my reaction is that investors should now be using the fall-back to top up their holdings in the Greencore Group (LON:GNC).
The Business
Employing over 13,300 people across its 16 world-class manufacturing sites and its 17 distribution centres, the group supplies all of the major supermarkets in the UK, as well as convenience and travel retail outlets, discounters, coffee shops, foodservice and other retailers.
It has strong market positions in a range of categories, including sandwiches, salads, sushi, chilled snacking, chilled ready meals, chilled soups and sauces, chilled quiche, ambient sauces, pickles and frozen Yorkshire Puddings.
Greencore is a lot of numbers – it made 748m sandwiches and other food-to-go products, 125m chilled ready meals, and 204m bottles of cooking sauces, dips and table sauces in its 2024 Trading Year.
It also makes some 10,500 direct-to-store deliveries each day.
And it is an easy bet that we have all recently eaten various of its products.
Its Q1 Trading Update
On Thursday 30th January, the group issued its Trading Update for the 13 weeks to 27th December 2024.
It showed group revenues some 7.5% ahead at £474.3m in the period, with its profit conversion continuing to be strong and in line with its Management expectations.
Management Comment
CEO Dalton Philips stated that:
"The Group has made a positive start to FY25, and I am encouraged by the platform this provides us for the rest of the financial year.
Our volume growth of 2.6% in the quarter again outperforms the market and is driven by both underlying volume growth and winning new business.
This reflects a combination of the quality of our products, our commitment to innovation and the strength of our relationships with our customers.
We continue to make progress against each of our strategic objectives and are well positioned to continue this momentum through FY25.
We continue to remain focused on making high quality food, enhancing our profitability, and strengthening our position as the UK's leading convenience foods manufacturer.
We have delivered a strong Q1 and are confident that we will deliver a full year performance in line with current market expectations.
We will share more detail on our medium-term growth strategy at our Capital Markets Event in February.”
That CMD was held yesterday, reactions to which will filter out over the next few days, with the CEO stating that:
"We are excited to unveil Greencore's refined strategic direction, which will build on the positive momentum from the past two years.
This Capital Markets Day is the group's first since 2019 and during the event, we will provide details of our plan to further strengthen our core business, outline how we intend to grow and expand, including the role of mergers & acquisitions, and detail our approach to capital allocation and delivering shareholder returns.
As part of this plan, we are establishing a set of ambitious medium-term financial targets.
We are confident in our ability to deliver these targets and believe this plan will benefit not just our shareholders but also our colleagues, customers and other partners."
Analyst Views
At Shore Capital Markets, the House Broker, analysts Darren Shirley and Clive Black commented that the group at the CMD will have outlined its new medium-term financial targets, and the associated capital allocation framework, also explaining why such targets have been set and how they will be delivered.
Ahead of yesterday’s event they assumed that the group’s financial targets are:
· Over 15% return on invested capital
· 3 to 5% annual revenue growth
· Over 7% adjusted operating profit
· Over 55% cash conversion, and
· 1 to 1.5x leverage target (pre-IFRS Debt to Adjusted EBITDA)
The broker's latest estimates are for the year to end-September 2025 to show revenues of £1,879m (£1,807m) with adjusted pre-tax profits of £84.5m (£74.7m), increasing earnings to 13.9p (12.7p) and lifting its dividend to 3.5p (2.0p) per share.
For the 2026 year, they see £1,924m sales, £91.0m profits, 15.0p earnings and the payment of a 4.3p dividend.
In My View
As the CEO says,
"Greencore is a great business with a strong foundation, lasting partnerships with customers, great food credentials, excellence programmes that are delivering and outstanding people.
There is a real opportunity to drive significant, incremental value in the coming years and we are looking forward to sharing our visio
n and ambition for the future."
Even though we have had an excellent run with the group’s shares since featuring them at just 112.90p on 26th March last year, I continue to consider that they are inexpensive even after having risen 9.60p this morning, some 5.25% better at 192.60p – and now still present an excellent buying opportunity.
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