Greencore profits to fall, brokers warn

CONVENIENCE food group Greencore will be hit by lower earnings over the next two years due mainly to the rising cost of raw materials.

NCB Stockbrokers, in a review of the group’s prospects, has put a €1.20 price target on the stock for 2011, from an earlier forecast of €1.35.

Having reached a 52-week high of €1.48 in November 2010 as a result of the proposed merger with Northern Foods the share has lost traction since the merger deal blew up and the brokers warn severe price competition in the British retail sector will make it difficult for the company to recover rising costs.

While the failed merger was a disappointment NCB endorsed Greencore’s management for not entering an all-out bidding war for Northern which owns Goodfellas pizzas and Donegal Catch, both of which were part of the former Green Isle Group.

NCB said the price put on the company by British businessman Ranjit Boparan which valued it at Stg£70 per share, or €400m, was too high.

Shareholders would have suffered “value destruction” by what it described as “the punchy” valuation multiple of the Boparan Holdings offer which was over 12times Northern’s earnings, it said.

Greencore’s current 12-month price target of €1.20 is based on a multiple of 8x earnings which better reflects the prospects for the group over the next 12 months.

The brokers do not expect a meaningful contribution from property profits in FY2011 and FY2012 and is forecasting a decline in the ingredients /property division to €2.5m from €5.6m for each of the next two years.