Greencore boosted by return of office workers

Takeaway sandwiches and meal deals are being snapped up as more workers return to offices, with convenience options proving an attractive choice amidst cost-of-living pressures. This helped food manufacturer Greencore (GNC) record “volume growth ahead of the wider market” in its annual results, as customers eating out and at home accepted price increases across a range of categories. 

Chief executive Dalton Philips argued that "the high street is offering tremendous value". Sandwich volumes grew as food to go revenues climbed 7.9 per cent to £1.25bn, while the other convenience division (which includes products such as chilled ready meals and soups) enjoyed a 14 per cent top line uplift to £661mn. 

The numbers were pretty much as expected after the trading update in October. Adjusted operating profit rose 5.7 per cent to £76.3mn, at the top of management's guidance range. However, further detail on the day meant the shares were marked down as investors were displeased by a 2.8 per cent decline in adjusted pre-tax profits and a 20-basis point contraction in adjusted operating margin. Finance costs hurt, rising 72 per cent to £21.5mn.

With leverage falling from 1.5 times to 1.2 times year-on-year, the balance sheet is looking stronger. The company refinanced its debt facilities after the year-end with a £350mn revolving credit facility linked to sustainability targets. 

Looking ahead, a key challenge will be how Greencore deals with the 9.8 per cent increase in the national living wage which will hit it in April. HSBC analysts said this would mean at least £30mn of additional cost that the company will need to try and offset from the second half of next year. 

A valuation of 10 times forward consensus earnings is undemanding given the recovery trajectory. While analysts expect lower revenue next year, this is due to the September sale of edible oils business Trilby and the resignation from unprofitable contracts. Hold. 

Last IC view: Hold, 78p, 30 May 2023