- Shore Capital raises pre-tax profit forecast 11%
- Balance sheet getting even stronger
- Further £15 million buyback launched
Investors snapped up stock of Dublin-headquartered Greencore (GNC) in early trading on 10 October thanks to the company's ongoing sales optimism and news of a fresh share buyback. Shares in the convenience foods supplier jumped 17% to 80.5p, still leaving them far cheaper than the average cost of one of its sandwiches.
Thanks to robust demand and margin improvement, Greencore now expects adjusted operating profit for the year to 29 September 2023 will be in the £74 million to £76 million range, comfortably ahead of the £70.1 million called for by analysts, based on consensus forecasts.
SOLID GROWTH FROM SANDWICHES KING
The sandwiches king, which supplies all of the UK’s major supermarkets as well as travel retail outlets and coffee shops, has successfully emerged from a challenging couple of years of pandemic-induced low footfall and unprecedented cost inflation.
The company delivered solid sales growth of 4% in the fourth quarter, taking revenue growth for the full year to a tasty 13%.
Delivered despite headwinds from hot summer weather, which suppresses demand for sandwiches, and tough prior year comparatives, this revenue growth combined with improving margins drove the well-received full-year earnings upgrade.
FURTHER £15 MILLION BUYBACK TO FOLLOW
Chilled prepared meals maker Greencore also guided towards lower-than-expected year-end net debt of around £155 million.
That represents a near-15% year-on-year reduction even after capital expenditure and buybacks and means Greencore’s net debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) will be within the group’s medium term target range of one to 1.5-times multiple.
Greencore completed £25 million of share buybacks during the year, and given its increasingly robust balance sheet, plans to kick-start the final £15 million tranche of its original £50 million shareholder return by May 2024, ‘in due course’.
WHAT DID THE CEO SAY?
CEO Dalton Philips said Greencore delivered ‘a strong second half performance in what was a difficult seasonal comparative period and against the backdrop of inflation and a challenging consumer environment.
‘We continue to drive operational improvements across the business underpinned by our commitment to quality and customer service. While macro-economic uncertainty remains, we are pleased with the expected full year 2023 outcome and are committed to driving an improved financial performance in the period ahead.’
BROKER VIEWS
Following the update, Shore Capital upgraded its full-year 2023 pre-tax profit forecast by 11% to £55.8 million for earnings per share (EPS) of 8.8p.
‘We leave our full-year 2024 forecast unchanged at pre-tax profit of £62 million and EPS of 10p ahead of the full-year 2023 results when more colour may ensue’, explained the house broker, which believes Greencore could be ‘one of the best value plays in the UK consumer scene at this time’ with cost inflation easing and margins rebuilding.
Jefferies, lukewarm on the stock with a ‘hold’ rating, commented: ‘An encouraging (and uncharacteristic) upgrade from Greencore, delivered despite some Q4 headwinds. No specific outperformance has been highlighted, but we assume continued delivery of the group’s inflation recovery programme, and “Better Greencore” cost savings, as well as the robust trading performance already delivered through Q3.’
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