Ongoing labour cost challenges, higher input costs, sustained brisk organic sales volume growth and further room for innovation at both product and distribution level were the key investment features of the 2018 British Sandwich & Food to Go Association AGM and Conference, which was held in London yesterday. Moreover, the association had strong messages on food waste reduction and CSR, both of which are important as the industry body continues to lobby the UK government hard ahead of Brexit. The chief UK listed plays on Food to Go are Greencore (GNC LN, BUY, 310p), Cranswick (CWK LN, HOLD, T/P 2700p) and potentially Produce Investments (PIL LN, BUY, T/P 240p). Our overall industry stance remains positive.
Companies: GNC CWK PIL
A debate about why major US food manufacturers’ margins appear consistently higher than those achieved in Europe is, in our view, worth having. In particular, should greater willingness to outsource production processes and focus more on marketing, new product development, finance and strategic M&A be the answer, there could be significant revenue growth opportunities for those who act as food industry solution providers.
Companies: BN NESN ULVR CA GNC PIL CWK
British Sandwich Association led Food to Go trade fair “Lunch!” opened at the Excel Exhibition Centre in London yesterday. Key messages in the plenary sessions remain positive for Food to Go category volume growth. Lunchtime purchases should be the strongest performer. Costs continue to be voiced as a concern - not just labour but also some key ingredients such as butter.
Companies: Greencore Group Plc
While recent market concern and potential negative newsflow for Greencore (GNC LN, BUY, T/P 310p) focused on the US, some market concern appears to remain that the UK business – while clearly one that enjoys sustained volume growth – may come under margin pressure due to higher employment costs. In particular, there is concern about the lack of availability of Central and Eastern European labour once the UK leaves the EU.
Greencore (GNC LN, BUY, T/P 310p) issued a statement today in response to the recent weakness in its share price, which has been in the aftermath of a 27th July 2017 trading statement that confirmed expectations for the full year.
Greencore’s (GNC LN, BUY, T/P 310p) trading statement last Thursday 27th July reported strong UK Food to Go growth and updated on progress in the USA. The company announced revenue increased 11.8% on a pro forma basis. In this Quick Sharpener we update our forecasts – refer to exhibit 1. Revenue is maintained but diluted adjusted EBIT is reduced in both FY2017 and FY2018.
Greencore’ Q3 (GNC LN, BUY, T/P 310p) trading statement reported unusually strong 23% UK Food to Go growth, while there are clear signs of progress in the USA even at this early stage. The company acquired Chicago based Peacock Foods at the end of 2016. Greencore’s Q3 revenue was £636.5m, a reported 76.6% increase and 11.8% pro forma, or like for like.
Next week includes a busy reporting schedule for the UK FMCG sector with 7 names in our coverage universe due to release either a trading statement or results. So far, we infer that Q2 2017 included sustained slowing in emerging markets for the larger operators and continued sluggishness in mature markets, notably Western Europe. However, for the small and mid-cap soft drinks companies, which include Britvic (BVIC LN, BUY, T/P 800p) the UK weather was clearly helpful. This should have had a positive impact also on domestic Food to Go.
Companies: RB/ CWK FEVR BATS BVIC DGE GNC
Greencore's (GNC LN, BUY, T/P 310p) presence as a solution provider to large US branded CPG operators is to date young relative to its presence in US and UK Food to Go. However, there was clear evidence from its Chicago based capital markets day that the "young cub" knows how to roar. Moreover, the investor knowledge asymmetry between the UK and US operations should diminish.
Firms not exposed to overseas earnings boosts likely to see negative impact of higher input costs
Greencore’s (GNC LN, BUY, T/P 310p) interim FY2017 results were ahead of expectations at both revenue and EBITDA level while being in line for EPS. The relevant numbers were £1,010m vs Bloomberg consensus of £961m. £79.1m vs £77.0m and 6.3p vs 6.5p, respectively.
Greencore (GNC LN, BUY, T/P 310p) is due to release interim FY2017 results on Tuesday 23rd May 2017. We forecast £961m of revenue, a 39% hike on H1 FY2016 and £51.8m of PBT, a 65% rise. The bulk of increase in revenue comes from the Peacocks acquisition completed at the end of 2016.
British Sandwich Association’s annual Sandwich Designer of the Year awards – “The Sammies” – were held in London yesterday. In addition, industry expert Simon Stenning, Executive Director of MCA, presented an update on UK Food to Go (FTG) industry trends. Overall the message was positive which benefits Greencore (GNC LN, BUY, T/P 310p). We remain sanguine about the USA.
Greencore’s (GNC LN, BUY, T/P 310p) share price fell sharply by around 7½% yesterday after its largest customer US based Tyson (TSN US, N/R) announced a $3.2bn deal to acquire Ohio based food manufacturing and foodservice company Advance Pierre Foods. While the deal expands Tyson’s operations to include Foodservice, Retail, Convenience and Schools, it is unclear why such an announcement implies major disruption to Greencore’s US business with the company – notably the Jimmy Deans breakfast sandwich.
Greencore’s (GNC LN, BUY, T/P 310p) 28th March 2017 analyst/investor day – its first to Northampton for five years – delivered a number of positive messages. While there was no trading update, it is clear that momentum in UK Food to Go remains strong and that the site – dedicated to M&S – benefits from continuous expansion and improvement. Greencore remains UK market leader in sandwiches with 45% total share and 59% grocery share.
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Despite Covid-19 materially impacting the Foodservice business, Finsbury traded profitably throughout Q4, and was able to report FY20A Adj EBITDA (pre-IFRS 16) only c4% lower YoY at £24.4m, whilst strong free cash flow (c19% historic FCF yield) reduced net leverage by 0.3x YoY to 1.1x (net debt lower by £9.1m YoY). Demand has been recovering MoM since April, with group revenues now approaching their prior year levels. Notwithstanding the steady improvement seen, due to continued uncertainty caused by Covid- 19, including the potential effects of a second wave of infections, we are not reinstating forecasts at this stage, and maintain our Under Review recommendation.
Companies: Finsbury Food Group Plc
Initiating with a Buy rating – We initiate our coverage on Dekel Agri-Vision with a BUY rating and a target price of 7.6p, equating to a market capitalisation of £32.2m. We believe Dekel Agri-Vision's agri-commodity diversification strategy, complementing its existing palm oil processing operations with a new cashew nut processing project (in which the company currently has a 43.8% interest, and an option to acquire a further 17%), provides a solid platform to enhance margins and drive step changes in profitability in the coming years.
Companies: Dekel Agri-Vision Plc
A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
Companies: BCA CLIN CLG CBP DNLM EAH STU FCRM FUTR GTLY INS GLE NICL SDL SPR TRI
A brief year-end trading update with not a huge amount of details. The main point is that post the July 2019 profit warning, the PBT performance through a combination of mix and cost savings has come in towards top-end of market expectations, implying c18% y/y decline. So a c3% beat vs our £36.5m. Revenue decline at -9% however was worse than our -7%. This reflects ongoing challenges with the Rubicon and Rockstar barns and lower Irn-Bru volume due to price realignment. Net, the company had a better H2 than H1 and from our understanding, exits Q4 with good momentum. Looking ahead to 2020, the comps are easier and the company is expected to get back into growth mode (albeit 3% at the PBT level). The main cloud on the horizon is the Deposit Return Scheme for Scotland, and we understand the Scottish Parliament will provide an update on plans in the next few weeks. We view this as short-term negative for AG Barr and hence have a y/y profit decline for FY22. Post today’s update we nudge our current year PBT up by 2% and FY21 by 2% also. There will be some investor relief this morning but given the anaemic growth outlook and ongoing headwinds we feel an FY21 P/E looks full. We stay at Hold.
Companies: A.G. BARR Plc
Cake Box has started FY2021 positively with strong same store sales growth, new store openings and an excellent online performance. The company is not only able to repay its furlough monies, but also reward shareholders with a special dividend. Cake Box released a trading statement as such this morning.
Companies: Cake Box Holdings Plc