By Brian O’Mahony, Chief Business Correspondent
IN its latest update on Greencore a leading firm of stockbrokers has downgraded its recommendation from a Buy to Neutral and advised investors to switch to Kerry Group instead.
Dolmen Stockbrokers said the rise in the value of the stock of 18% to current levels represented fair value at this stage.
Recently Investec and NCB Stockbrokers recommended the shares on the grounds convenience food was emerging as the dominant force in the group.
Compared to its peers the group’s rating was low, they said.
With the uncertainty of the sugar business due to be resolved they argued the clear focus on convenience foods would be an added bonus for the group.
Dolmen has short-term reservations about the food division, which is facing price and cost pressures that will impact on earnings.
While a buy rating looked justified overall Dolmen says the "limited near-term growth" in the food business is probably fully reflected at current price levels.
Dolmen said Greencore’s food business earnings potential is limited to mid-single digit figures.
Last year the group was hit by exceptional charges of €123 million which more than offset the potential exceptional gains the group has forecast from the sale of its former Carlow sugar plant, worth about €40m.
"We now downgrade our Greencore recommendation from Buy to Neutral and recommend a switch into Kerry Group as providing stronger earnings growth and greater share price upside from current levels within the Irish food sector," said the broker.
Greencore shares fell 1.37% to 360cents yesterday as uncertainty over the sugar regime took its toll.