Sandwiches, salads and sushi maker Greencore (GNC) was the biggest faller on the FTSE 250 on Tuesday, the shares tumbling 14% to 146.5p on profit-taking after a tasty run and with investors digesting news of a 19% first half sales plunge to £577.1 million and a lurch to a £7.9 million adjusted loss before tax.
This share price reaction to backward-looking results seems overdone, since the world’s largest fresh pre-packaged sandwich maker served up a positive outlook, highlighting ‘encouraging revenue momentum’ in the first seven weeks of the second half.
COVID CASUALTY
The quiche-to-Yorkshire puddings maker’s profit collapse for the half ending 26 March 2021 was entirely down to the drop in volumes in its food to go business, with results covering a period when the majority of the UK was living under various levels of lockdown and social restrictions.
‘This has been a challenging period for Greencore’, said CEO Patrick Coveney (pictured below), ‘but the consistent build in our revenues since early March as lockdown measures have eased and Covid-19 cases have fallen give us real cause for optimism. Our focus now is on rebuilding revenue, profitability and cash flow momentum as the UK economy reopens.’
READY TO REBOUND
Encouragingly, trading has strengthened for Greencore as pandemic restrictions ease and mobility increases, with group sales for the first seven weeks of the second half down just 5% on pre-Covid levels.
In those seven weeks, sales across Greencore’s food to go categories were up roughly 123% year-on-year, and some 14% below the equivalent pre-Covid period in full year 2019.
Greencore also expects net debt to reduce further in the second half and anticipates that ‘a continued reopening of the UK in line with the current roadmap and a consequential rebuild of group revenue would be expected to generate a full year 2021 adjusted operating profit outturn above full year 2020 levels’.
REINTRODUCING FORECASTS
With the UK’s reopening looking to be on track for mid-summer and Greencore confirming a strong pipeline of new business wins, house broker Shore Capital believes this is ‘an opportune time’ to reintroduce forecasts withdrawn in the early days of the first national lockdown.
For the year to September 2021, the broker forecasts pre-tax profits of £19.7 million, recovering to £62 million in 2022 and £77.5 million in 2023.
‘With the worst of pandemic influenced market conditions hopefully coming to an end, we reiterate our belief that Greencore is well placed to deliver sustained medium-term growth with its core retail customer base,’ commented Shore Capital.
The broker added that Greencore should also ‘benefit from reduced capacity and so market share gains’ and is ‘clearly demonstrating is ability to generate new business wins, not just from customers exposed to the collapse of Adelie but also with existing customers across its product categories. Furthermore, it is doing so in evermore sustainable ways.’
