Fill up on Green­core while the mar­ket is feast­ing else­where

Shares in sand­wiches-to-soups maker have been over­sold

Shares - - CONTENTS -

Share price weak­ness at sand­wiches, sal­ads and chilled soups sup­plier

Green­core (GNC) presents a tasty buy­ing op­por­tu­nity for growth and in­come seek­ers.

The con­ve­nience foods maker’s mar­gins and cash flows have come un­der pres­sure in re­cent years due to high lev­els of in­vest­ment, yet Green­core is a busi­ness with strong fun­da­men­tals en­ter­ing a pe­riod of nour­ish­ing re­turns.


Green­core is a lead­ing provider of food-to-go and gro­cery prod­ucts, sup­ply­ing own-la­bel prod­ucts to all the ma­jor UK su­per­mar­kets.

Fol­low­ing De­cem­ber 2016’s £594.3m ac­qui­si­tion of Pea­cock Foods, Dublin-head­quar­tered Green­core is now also a lead­ing man­u­fac­turer of con­sumer pack­aged goods for ma­jor food brands in the US, among them Kraft Heinz, and pro­duces

prod­ucts for US con­ve­nience retail and food ser­vice lead­ers.

Sen­ti­ment to­wards Green­core is poor fol­low­ing the loss of its Star­bucks frozen prod­ucts con­tract. A pre­cau­tion­ary prod­uct re­call in the US has also weighed on sen­ti­ment.

Mar­gins have been im­pacted by in­put cost and wage in­fla­tion in the UK, while free cash flow has been ham­pered by ma­jor cap­i­tal ex­pen­di­ture projects to sup­port growth.


Why are we bullish on the stock? Well, Green­core’s com­pet­i­tive strengths and growth po­ten­tial are cur­rently un­der­ap­pre­ci­ated by the mar­ket.

Food-to-go is one of the fastest grow­ing parts of the UK food in­dus­try, un­der­pinned by changes in con­sumer be­hav­iour.

Ma­jor projects to sup­port new wins with key cus­tomers are en­ter­ing the fi­nal stages of de­liv­ery, mean­ing Green­core’s spend­ing will fall, free cash flow should rise and debt lev­els can be re­duced.

Frozen break­fast sand­wichesto-chilled meals maker Pea­cock has trans­formed Green­core’s busi­ness across the pond.

Pro­vid­ing a growth plat­form of real scale, Pea­cock has strength­ened the US man­age­ment team and gears Green­core into a trend to­wards out­sourced man­u­fac­tur­ing among US con­sumer pack­aged goods gi­ants.

Nu­mis Se­cu­ri­ties has a ‘buy’ rat­ing and 300p price tar­get for Green­core, ex­pect­ing an in­creased fo­cus on mar­gin growth, cash gen­er­a­tion and im­prov­ing re­turns go­ing for­ward.

For the year to Septem­ber 2017 – the re­sults are due next month (28 Nov) – Nu­mis fore­casts im­proved pre-tax profit of £117.3m (2016: £85.9m) ahead of £147.4m and £163.3m in fis­cal 2018 and 2019 re­spec­tively.

Based on fore­cast Septem­ber 2018 earn­ings per share of 17.5p (2017: 15.9p) and a 6.18p div­i­dend (2017: 5.5p), Green­core’s growth prospects are ma­te­ri­ally un­der­val­ued on a PE of 10.5 times with a nour­ish­ing yield of 3.3%. (JC)

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