Convenience and food-to-go business Greencore has posted a 0.8% increase in pro forma group revenue in its third quarter, with reported revenue down 2.9%.
Commenting on the period, the group said that it is 'performing well against its strategic and financial objectives'.
Here's how leading analysts viewed its third quarter performance.
Jason Molins, Goodbody
"Greencore has this morning reported a resilient Q3 trading update, with pro-forma Group revenue growth of 0.8% (H119 5.4%). This was driven by Food to Go (FTG) category growth of 0.6% and Other convenience food categories growth of 1.4%. With regards to the outlook, the company notes that it is performing well against its strategic and financial objectives, despite the soft Q3 outcome.
"We maintain our positive stance on the stock, noting its FY20 respective PE and EV/EBITDA of 11.6x and 8.1x which represents a 25-30% discount to its closest peers. The upcoming CMD (September 26th) may provide a further catalyst to the stock as management will likely provide greater insight to the Group’s growth agenda, key financial targets and capital allocation priorities."
Darren Shirley, Shore Capital
"Building on the strengthened balance sheet is our expectation for strong and sustained cash generation over the medium term, which will inject considerable optionality into the Greencore investment case around organic and inorganic investment, and potential capital returns.
"We are firmly of the belief that inorganic investment will focus on growth categories and food-to-go, not consolidation, hence we struggle to see the rationale for a Bakkavor tieup. So a particularly tough period for the UK market continues to take its toll, and on our revised forecasts Greencore’s stock is trading on a September 2019 PER of 13.5x and an EV/EBITDA multiple of 8.4x – we forecast a dividend yield of 2.7%.
"Now focused on its UK core, Greencore is a well invested business with an attractive mid-teens RoIC and despite short term challenges we reiterate our BUY recommendation, believing Greencore is undervalued given the potential for strong EPS growth and ratings expansion over the medium term."
Cathal Kenny, Davy
"Despite challenging comps and unseasonal weather, Greencore’s Q3 update was light of our expectations. Given ‘weak market conditions’ in Food-to-Go, we do not envisage a material recovery in market growth rates over the coming quarters.
"This backdrop may accelerate the development of previously signalled product adjacencies and channel extension. We expect to modestly reduce (1-2%) our FY EBITA forecast of £108.5m."
David Fahy, Cantor Fitzgerald
"This quarter was considerably weaker than we had expected with the food to go business underwhelming. However, the year to date figure of +4.6% for the segment is closer to our forecasts (mid –high single digit growth). We expect a pickup in these numbers into year end. The convenience food segment was slightly below our expectations but it will benefit from the aforementioned divestments.
"The stock has had a solid run since the beginning of the year. While the medium term outlook remains positive (this quarter being a blip), Brexit risk continues to increase. Given Greencore’s UK focus and its sensitivity to higher cost imports and wage inflation we have become more cautious on the stock. As a result we maintain our 12m PT of 223p (reflecting a FY19 EV/EBITDA of 8.5x) and move recommendation from Under Review to Market Perform."
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
