Last week, Greencore reported turnover up 8.7% to £804M in the year to September 2011. Like-for-like sales climbed 4.3%, boosted by the performance of its Convenience Foods division. Pre-tax profits dropped to £12M from £26M last year.
Shirley and Black said: “We believe Greencore is significantly undervalued, with a 2012 Price Earnings Ratio (PER) at 4.9 times, an earnings before interest, taxes, depreciation, and amortization (EBITDA) of 4.9 times and a dividend yield of 8.2%.
“This is more akin to a business in distress rather than one that in our view delivers differentiating value added products to its customers and is in the early stages of improving both profitability and importantly cash generation.”
Greencore’s Convenience Foods business reported further resilient trading, according to Black and Shirley, with sales ahead 5.9% (including like-for-like growth of 3.4%) and particularly robust performances in sandwiches, prepared meals and grocery categories. This was offset by a challenging Cakes & Desserts market and issues in yorkshire pudding.
The US business benefited from the On A Roll acquisition, increasing penetration in convenience retails channels. Though we believe the US remains modestly lossmaking for the time being, they added.
The firm’s acquisition of Uniq has also started to show “synergies” following the takeover in September, according to Black and Shirley.
They said: “As confidence in the virtues of Uniq builds, we believe a €1 share price is achievable in the medium term.”