Insider: a smart bet on mid-cap share, heavy selling at M&S

A wave of support for Greencore Group (LSE:GNC) shares last week included £850,000 of boardroom dealings as the chilled food supplier continued its recovery from a bout of recent heavy selling.

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The purchase by food industry veteran Leslie Van de Walle took place after Greencore upgraded profit guidance and said newly-acquired Bakkavor had performed well under its ownership.

The third-quarter update gave a much-needed boost to the FTSE 250-listed shares, having fallen from 306p in February to as low as 191p in the aftermath of interim results at the end of May.

House broker Shore Capital said the shares had been treated harshly, making last week’s update an “excellent opportunity to buy into an investment thesis that has some way to positively run”.

Deutsche Numis last week lifted its price target by 15p to 340p, while counterparts at Peel Hunt are at 300p after noting a “compelling” valuation of 9.7 times its forecast earnings.

The latter said: “We believe this update should be taken well after the misplaced anxiety following the half-year results, with a positive start to the fourth quarter helped by weather and new business wins.”

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Van de Walle, who has led the board as chair since January 2023, made his purchase on Wednesday at a price of 238p.

The former director at Danone, Cadbury Schweppes and United Biscuits has been a regular Greencore investor in the period since the post-results share price slump.

He also spent £245,000 and £150,000 at prices of 194.9p and 200.4p in early June, on top of two initial purchases just after the interim results worth £68,000 and £13,000.

The results-led slide was blamed on Bakkavor integration jitters, working capital outflows during the first half of the year and subdued conditions in the Food-to-Go sector, even though Greencore reiterated its profit guidance for the year.

It now sees an improved figure of between £234 million and £242 million, some 6% higher than the market consensus forecast of £224 million prior to last week’s trading update.

Chief executive Dalton Philips said: "Greencore has never been stronger, and I'm really encouraged by what the enlarged business is starting to achieve.”

The company’s £1.5 billion acquisition of Bakkavor completed on 16 January, creating the UK's leading fresh convenience food manufacturer with combined revenues of £4 billion. It supplies all major UK supermarkets, convenience and travel retail outlets, with its portfolio of 3,200 products including sandwiches, salads, sushi and ready meals.

The third-quarter update showed pro-forma revenue growth of 3.2% in the period to 26 June, driven by 4.7% in food-for-now categories alongside 1.8% in food-for-later.

Underlying profit momentum was ahead of expectations in both the legacy Greencore and Bakkavor businesses, driven by volume growth and continued margin improvement.

Some 375 new products were launched during the period, including World Cup themed items such as stuffed pizza crust ranges and formats such as doughball sharing buckets.

Greencore continues to target £80 million in annual cost synergies from the Bakkavor deal.

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City firm Berenberg said the deal increased the moat around the Greencore business by deepening relationships with existing customers and supporting category expansion.

It pointed out that cash generation following the acquisition should be significant, giving Greencore the ability to sustain investment in order to grow its market share.

The bank added last week: “We believe the update supports the rationale for the Bakkavor acquisition and highlights the improving growth and margin potential of the business.”

It has a price target of 351p, highlighting Greencore's current multiple of about nine times 2027 earnings compared to Premier Foods on 11 times and Cranswick on 17 times.

M&S profit taking

Three Marks & Spencer Group (LSE:MKS) directors have raised a total of £2.7 million after they sold shares at prices as much as 28% above where the FTSE 100-listed retailer traded in May.

Alex Freudmann, who runs M&S’s food department, generated approximately £1.1 million through Wednesday’s disposal of 270,000 shares at 397.6p.

His colleague Sacha Berendji, who joined M&S in 1994 as a graduate trainee and is now operations director, secured about £1.3 million on the same day.

International director Mark Lemming raised £313,000 on Thursday after selling shares at the cheaper price of 378.2p.

Their moves came after a bounce on the back of annual results on 20 May took the retailer’s shares to the brink of the 400p threshold achieved in February.

While last year’s cyber attack meant adjusted profits fell 24% to £671.4 million, Deutsche Numis said the chain exited the year more strongly than it had anticipated in both clothing and food.

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The performance supported the bank’s investment thesis that the business is back on track to return to sales growth, with cost efficiencies supporting profit margin recovery and increased capital expenditure underwriting future profit delivery.

Deutsche Numis, which had a price target of 435p at the time, added: “The improvement in the customer offer continues and it is refreshing to see a UK retailer with both like-for-like sales growth and new space ambitions.”

M&S shares were given a further boost last week when analysts at JP Morgan lifted their price target to 450p.