Convenience foods firm Greencore surprised the market this morning with the announcement that it is to exit the US, with the sale of its operations there to Hearthside Food Solutions.
The move comes just months after Greencore announced a 'refined and refocused' strategy that sought to improve operational performance in its US network, as well as the closure of a plant in Rhode Island.
Here's how leading analysts saw this morning's Greencore announcement:
Russ Mould, AJ Bell
“The US division disposal isn’t entirely surprising given how Greencore has struggled in that part of the world for several years as the loss of a contract with Starbucks in 2017 and slower than expected new business wins left earnings short of expectations.
“The stock had recently started to recover on market chatter that Greencore had attracted some takeover interest. Clearly any talks have resulted in the sale of part of the group, not the whole business. Shareholders may not be enamoured by the promise of a 72p special dividend. That doesn’t really provide full compensation for the capital losses they’ve experienced as a result of the US division’s problems.
“However, one has to applaud Greencore for taking decisive action. Too often businesses retain struggling operations in the hope they will eventually improve. In reality many of these businesses are wasting money trying to keep their head above water when they would be better off cutting ties completely and focusing on stronger operations.”
Cathal Kenny, Davy Stockbrokers
"Greencore’s surprising exit of its US business book-ends a non-linear journey that began in 2008. The transaction is being effected at a premium to its US invested capital base. The multiple (13.4-14.2x EV/EBITDA) exceeds the market implied value of the US entity. Coincidently, the proposed special dividend compensates shareholders for the Peacock-led rights issue – the strategic reversal of which is rare.
"The model will revert to a simpler UK centric business with a mix of lower growth but higher returns on capital, with an associated operating profit base of c.£115m (Davy September 2019 forecast)."
Chris Bailey, Share Prophets
"I cannot really call it the luck of the Irish but sandwich supremo Greencore (GNC) seems to have got itself out of a potential hole with the announcement today that it is selling its entire US business to a US buyer for just under $1.1 billion.
"It calls it 'an immediate realisation of value' but given it spent £750 million two years ago to beef up an existing but undeveloped prior US position, this does not represent some hugely remunerative return...more a way to cut down its debt problem."
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
