The analysts agreed that the sale was evidence Greencore was “effectively developing its business”.
Leading player
“Greencore is … a leading player in the British prepared food market,” said Shirley and Black. “In this respect, we see the Uniq acquisition as a positive development for Greencore and the broader trade as more focus, discipline and direction is introduced.”
After Greencore’s acquisition of US food-to-go firm Marketfare Foods in April, Greencore was still in “an exploration and development phase”, said Shirley and Black. Total annualised sales including Marketfare now total about $160M.
Management’s growing focus on the convenience and food-to-go market, was matched by what the Shore analysts called “the emerging path” for Tesco’s Fresh & Easy US business with its greater emphasis on impulsive meal occasions through Kitchen-to-Go.
“We currently remain unsure as to whether there will be a full commitment[from Greencore] and so growth opportunity in this market.”
But Shirley and Black added: “ … we sense that management is doing work now that represents better quality thinking about where an opportunity may in time be carved out. They praised Greencore’s “undoubted intelligence”operating in the UK – one of the worlds leading prepared food markets.
They highlighted too “the need to be clear and focused about profitable delivery of what appears to be a good strategic opportunity in the States".
Greencore’s debt
Meanwhile, the cash proceeds from the Minsterley sale would have only a modest impact on Greencore’s debt, which Shore estimated will be about £277M by September 2012.
The analysts estimated a debt to EBITDA (earnings before interest, tax, depreciation and amortisation) of 2.9x for 2011/2012. But that would fall to 1.9x in 2013/2014 as the group’s cash flow benefits from the £400M of tax benefits acquired with Uniq.
Shore repeated its buy recommendation on Greencore stock.
Speaking after a meeting with Greencore, Shore analysts, Darren Shirley and Clive Black said: “It allows Greencore's management to focus on those parts of Uniq that especially interest it, not least of which is the salads and sandwiches operations and the development of its relationship with Marks & Spencer.”
