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Greencore set to benefit from Tyson deal

Greencore's shares have tumbled following a deal by a large US customer to buy a rival. However, we think Greencore may actually benefit.
April 27, 2017

Shares in food producer Greencore Group (GNC) fell by nearly 8 per cent after its biggest US customer, Tyson Foods, announced it was buying Advance Pierre for $3.2bn (£2.5bn) - a business operating in Greencore's fast growing "food-to-go" niche. But we feel that the market's knee-jerk reaction to the news ignores the fact that this deal probably represents more of an opportunity than a threat for Greencore.

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Tyson specialises in branded products and marketing, not manufacturing, and so the deal could see some of Advance Pierre's production outsourced to Greencore's recently acquired US division, Peacock. This is made all the more likely because Peacock and Tyson already have a long-term co-investment model in place, which aligns their interests.

Even in a worst-case scenario, Greencore is well insulated from shocks to its US business thanks to the long-term, multi-year nature of its contracts with Tyson and other big customers. Around 35 per cent of the group's revenue comes from Peacock, and Tyson is one of three big customers that accounts for 70 per cent of these sales.

Analysts at Whitman Howard believe that Greencore is still well placed to grow and expects the group to announce £2.4bn revenue and EPS of 16.1p in its FY2017 results next month, up from £1.4bn and 15.8p in 2016.