Interactive Investor

Insider: director picks up this small-cap share on the cheap

​​​​​​​Shares in this £500m company trade at a valuation close to 10-year lows, but one board member is tipping them to do much better. A FTSE 250 firm is also being backed to recover from multi-year lows.

19th February 2024 08:40

Graeme Evans from interactive investor

A £50,000 boardroom purchase of Greencore Group (LSE:GNC) shares has backed the food-to-go firm’s improvement strategy under former Morrisons boss Dalton Philips.

The investment was made last week by Linda Hickey, who has been on the Greencore board since February 2021 and whose 35 years of capital markets experience includes as head of corporate broking at Goodbody Stockbrokers.

The senior independent director bought the shares at 100p each, which compares with 76.4p when Philips took the helm in September 2022 and the 61p low point three months later.

The FTSE All-Share stock closed last week at 102.5p, having rallied 8% so far this year after January's first quarter trading update showed revenues up 5.8% on a like-for-like basis.

Philips said he was “extremely encouraged” by that performance, which included much stronger profit conversion following commercial, operational and cost initiatives. It proactively exited several contracts during 2023, including a significant chilled ready meals contract.

The group, which supplies all the major supermarkets through 16 manufacturing sites, made 779 million sandwiches and other food-to-go items in the last financial year. It is also the market leader in Italian ready meals and own-label ambient cooking sauces.

When Philips addressed analysts at last November’s annual results he said the company had dialled up the pace of change as it looks to “build back our profitability and returns.”

He highlighted the benefits of “long-standing, deep partnerships” with every major retailer in the UK across numerous categories.

Philips added: “It's hard to imagine a more testing time for these relationships, given the multiple crises of recent years, yet in every conversation I have with retail CEOs, they're asking us to do more, not less.”

The group has not paid a dividend in four years but is close to completing the return of £50 million to shareholders through a two-year buyback programme. It has just refinanced its debt with a new five-year £350 million revolving credit facility.

The company’s nine year stay in the FTSE 250 index ended in September 2022 after the demand shock caused by pandemic lockdowns and working from home was compounded by higher inflation and wage costs alongside cost-of-living pressures.

Having stabilised the business during the 2023 financial year, Philips is now focused on rebuilding profitability and returns between 2024 and 2026. The third strand of his plan up until 2028 is to target sustainable growth.

The shares rose sharply last October when the company upgraded 2023 results guidance, with Philips telling investors in January he is comfortable with City forecasts for this year.

With the peak second-half trading period still to come, the profits guidance is in the range of £80.5 million and £85 million compared with £66 million the year before.

Goodbody analysts note that Greencore trades at a valuation close to 10-year lows at about 9.6 times forecast 2024 earnings, having been an average of 13 times over the decade.

They added last month: “Overall, we continue to see significant upside from current levels given its undemanding valuation and robust earnings momentum into 2024 and beyond, noting easing cost inflation and the improving UK consumer backdrop.”

Can share price performance match the product?

Confidence in the Victrex (LSE:VCT) boardroom that the polymers firm is well placed when economic conditions improve was highlighted by chair Vivienne Cox last week.

She spent £15,000 on shares at a price of 1,366p, a few days after the FTSE 250-listed company reported a continuation of the weak conditions affecting the wider chemical sector.

The specialist in high performance polymer solutions used by industries including automotive, aerospace and medical said first quarter revenues fell 22% at £61.2 million after volumes declined 21% to 751 tonnes.

Despite January trading offering some encouragement at the start of the second quarter, the company expects first-half revenue and profits will be lower than the previous year.

Chief executive Jakob Sigurdsson still sees the opportunity to deliver a stronger year, although this will be harder to achieve if the current conditions continue.

He added that long-term prospects remain strong, including through the increased commercialisation of mega-programmes and the company’s well invested assets.

Sigurdsson said: “Overall, we are well-placed for a macro-economic recovery and for the medium to longer term."

UBS, which has a “sell” recommendation, said a significant recovery in volumes is needed “but not yet visible” for Victrex to meet the City’s full-year expectations.

The shares closed last week at 1,350p, have fallen 11% this year and by 25% in the past 12 months.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.