Greencore Share Discussion Threads

[richtea1701] 19/5/2014 07:11

Don't think they just make sandwiches ;) seminal work.

[wexboy] 19/5/2014 05:41

Company: Greencore Group

Prior Post(s): 2012 & 2013

Ticker: GNC:LN

Price: GBP 261p

Aah, Greencore – my bete noire, my dodgy egg sandwich... How astonishing & ridiculous is it to note GNC's quintupled since my first TGISVP review a little over two years ago. Can selling sandwiches to supermarkets really be that exciting?! I think bloody not... FY-2013 was virtually acquisition-free for Greencore, so 3.0% revenue growth's probably fairly representative of its actual growth potential. [And all this growth came from the US - the UK, Greencore's main market, was basically stagnant]. Granted, operating profit increased 8.1%, and adjusted EPS by 13.3% – quite respectable, but the bottom-line won't sustain this level of out-performance with that kind of top-line growth. And the company's tax rate is now an astonishing 1% (due to the utilization of Uniq tax losses) – a reversion to a more normal tax rate, in due course, will prove an enormous headwind.

The other big problems here are poor cash flow & excessive leverage. Plus the company's recurring exceptional (?!) expenses, of course – noting the relentless quest for lower unit costs, coupled with the usual margin pressure from the supermarkets, I don't expect these to end anytime soon. Greencore reported an operating margin of 6.4% (which tells you a lot about the reality of their business anyway), but operating free cash flow (Op FCF) margin came in at just 3.8% (mostly due to GBP 20 million of exceptional cash expenses). And that's no once-off phenomenon – 2012 Op FCF margin was 4.8%, while 2011 was only 1.4%. Awarding a 0.4 P/S multiple is quite generous, in the circumstances.

Of course, we'll adjust for the company's excessive leverage: Interest expense (at GBP 15.6 M) is a whopping 34% of Op FCF – we'd need to see total debt (of almost a quarter of a billion) cut by around 56% (or 138 M), to limit interest expense to 15% of Op FCF. We'll also throw in a net pension deficit of, coincidentally, another 138 M. [It's worth noting, in terms of potential future volatility, gross pension assets & liabilities are in a pretty daunting range of 400-500 M. btw Greencore also has a net payables position of almost 200 M - if suppliers ever turn nervous, this could turn into another funding headache]. This gives us:

(GBP 1,197 M Revenue * 0.4 P/S – 138 M Debt Adjustment – 138 M Net Pension Deficit) / 406 M Shares = GBP 50p

To me, Greencore continues to look ridiculously over-valued – I never learn, do I..? But I have to ask – why exactly does it deserve an 18.4 P/E?! [Based on adjusted diluted EPS. NB: For once, basic EPS is higher than adjusted EPS, but that's due to exceptional tax credits]. Considering the history of cash flow shortfalls, I think it's entirely appropriate to focus on free cash flow (FCF) here, rather than reported EPS. FY-2013 FCF amounted to a mere GBP 31.6 M (and 2012 FCF of 42 M wasn't much better in absolute terms) – that puts GNC now trading on 33.6 times FCF, vs. the 6.4 FCF multiple implied by my target price.

OK, one might argue both multiples sound equally crazy – but for an obviously over-leveraged sandwich maker, I'd happily bet underlying intrinsic value's far bloody closer to my multiple than the market's. In all likelihood, the outcome will be binary here: Investors often prefer to keep believing in the emperor's new clothes. As the all too familiar circular logic goes, the share price went up...so it must be a great company, right?! Well, unless things go horribly wrong (or a short selling research firm publishes a report)...then everybody will suddenly want to put the boot in!

Price Target: GBP 50p

Upside/(Downside): (81)%

[manics] 02/5/2014 13:49

HY results May 20th.

[burkedavid] 02/5/2014 12:47

clearly this is not allowed over 270p.

[manics] 02/5/2014 08:50

Retweeted by Greencore Group
Watchlist News ‏@WatchlistN 11h
Greencore Group plc Given "Outperform" Rating at Davy Research (GNC)

[manics] 24/4/2014 07:40

Well thank you Rich!

The spike to 300p was Henderson, Marshall and Blackrock closing a combined +1.5% institutional short.

-which suggests they each (separately, importantly) see the share price going a good way north of 300p eventually.

[richtea1701] 23/4/2014 21:49

Can only see 300+ here when she is good and ready. Good stats Manics.

[manics] 23/4/2014 21:25

FTSE250 on a PE of 22.99

Sector PE 19.75

Industry PE 15.7

GNC at PE of 17 -14.5p EPS

255p seems cheap-ish given the current performance of the business.

[mickeyb] 16/4/2014 14:57

nice bounce up 14.5p so far today, looks like news coming.

[richtea1701] 08/4/2014 17:57

Added just before the close at about 264. Call me boring but I know what I like.

[mickeyb] 28/3/2014 09:18

Good to see share price rising nicely again, back on the upward trend.

[richtea1701] 25/3/2014 15:53

That's my girl. What were we saying?

[richtea1701] 25/3/2014 13:10

Am holding too - can't see any obvious reason not to and if I had a few quid left would probably add. The growth story looks pretty strong and they're not spending a few million on new production facilities if they are not confident of more market share and stronger profits.
April should feel a bit better I hope.

[james010] 25/3/2014 12:53

Would echo richtea's comments. This did tank from 114 to 80 before though and that just looks like a tiny blip now. Hopefully this is the same. I hold.

[reels] 25/3/2014 11:46

Hi RTea,
Looks like profit taking at tax year end plus general pressure.

My view is summer should see brighter times for GNC.

Also following IPO ticker on basis of graphene.

Good hunting.

[jungle jim] 25/3/2014 11:45

Possibly fall-out from the supermarket price war.

[richtea1701] 25/3/2014 11:26

Hope we don't slide much below 250. Any thoughts on this retrace. This is my favourite share so I don't want to get too cross with it.

[richtea1701] 17/3/2014 16:11

Hope so Mickey B

[mickeyb] 17/3/2014 15:59

A 1 million trade at 266 gone through earlier today, share price slowly rising is that the end of the large sell trades and a recovery back to a rising trend.

[reels] 14/3/2014 14:53

I sold 2/3rds of my holding at 2.97 on the basis of tax planning. Using up some allowances. Hope to buy back early April. Maybe a number of sales are on same basis given the gains in 2013/14. Just a thought..

[richtea1701] 14/3/2014 10:34

Topped up in ISA. May drop more but could not resist.

[mrblonde77] 13/3/2014 22:18

Heres hoping, I followed suit, in at 291 long yesterday

[richtea1701] 13/3/2014 17:20

A rare rotten day for GNC - fairly sure it's a good old fashioned solid shake to weed out the weak.

Pity I did not hang on a bit longer.

[richtea1701] 11/3/2014 09:05

done - little punt on normal progress resuming shortly.

[mrblonde77] 10/3/2014 14:16

not really no, because i may well join you RichTea