Business

‘No silver bullet’ for Greencore as activist’s stake breaches 5% – Davy

Shares at the sandwich maker rallied 63% in London over the past 12 months but remain 60% below 2016 peak

Greencore chief executive Dalton Philips has set his sights on rebuilding the sandwich maker's profits to pre-Covid levels in the coming years

Joe Brennan
Thu Apr 4 2024 - 11:07

Sandwich maker Greencore, whose shares have soared more than a fifth since it emerged last month that a Hong Kong-based activist investor was building a stake, does not have easy levers to pull as it seeks to boost profitability, according to Davy*.

Oasis Management, which previously waged high-profile campaigns at two UK-listed companies, the Restaurant Group and Premier Foods, disclosed last week that its stake in Greencore stands at 5.16 per cent.

Greencore’s chief executive of 18 months Dalton Philips set a goal last November of rebuilding the group’s operating profit to its pre-Covid level of £106 million (€123.6 million) over three years, after initially focusing on stabilising the business.

The company had barely recovered from an ill-fated decade-long bet on the US market – with operations there being sold in late 2018 for $1 billion (€921 million) – when it was hit, in short order, by the pandemic, supply-chain and labour issues, as well as inflation. Mr Philips hired Catherine Gubbins, a former senior colleague at DAA, where he was previously CEO, as his chief financial officer late last year.

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“We see no silver bullet bar ongoing operational performance,” said Davy analyst Gary Martin in a note to clients on Thursday, addressing the consequences of Oasis acquiring a large stake in Greencore.

Mr Martin said the new management team is already addressing profit margin and asset underperformance.

Shares in Greencore have rallied 63 per cent in the past 12 months to £1.30 in London, giving it a market value of £611 million. However, they remain 60 per cent below their 2016 peak.

The result was helped as Mr Philips culled 250 management roles across a business that employs about 14,000 mainly low-paid workers; either passed on to supermarkets or found other ways to offset more than £200 million of inflation costs; and walked away from a number of contracts – totalling £110 million of sales – that were making little or no money.

[ Greencore revenue dips but company on track to meet forecasts for full year ]

The Sunday Times reported Oasis’s European head, Daniel Wosner, as saying late last month the investment firm has been a holder of Greencore shares “for several years” before the recent stakebuilding and that it is “supportive of management and its strategy”.

“We are aligned in our ambitions for the business, and we see significant opportunities for margin enhancement and value creation,” he added.

Still, Oasis is said to be frustrated that Greencore has not paid a dividend since 2020, after suspending payouts during the pandemic.

Greencore’s operating profit rose 5.7 per cent to £76.4 million in the year to September.

Oasis ramped up its stake in the Restaurant Group, owner of the Wagamama and Barburrito brands, to almost 18 per cent last year as it pursued a campaign against the company’s management. It subsequently made an estimated £40 million profit as the group was sold to US private equity giant Apollo for £506 million in December.

The activist investor previously targeted Premier Foods, in which it owned as much as a 17 per cent stake six years ago.

Oasis launched a campaign on Thursday against management of Japanese cosmetics and household products group Kao, calling on the company in a press release to improve its business. The investment firm did not disclose the size of its stake in the company.

*An earlier version of this story has been amended to give the correct name of the stockbroking form as Davy

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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