Dilution of stake in US company adds to under-performing Greencore's woes

It's difficult to know what's going on at Greencore, where the dismal performance of the share price down from a high of 390p at the start of the year to 315p this week seems to reflect some mistrust in the market about the strategic direction that the company is taking.

On the face of it, Greencore should at least have performed in line with IAWS, a company with broadly similar businesses but whose performance this year has been as much a revelation as Greencore's has been a disappointment. Greencore has under-performed the market by over 40 per cent while IAWS trading at an all-time high has outperformed the market by 12 per cent in the same period.

The main concern seems to be about the US associate, Imperial Holly, where Greencore has been diluted from 27 per cent to 16 per cent as a result of the shares issued to the shareholders in Savannah Foods - bought by Imperial Holly for £370 million.

To get back up to 27 per cent would cost Greencore £60 million and to go to a majority stake would involve £200 million a lot of money to invest in an industry which many analysts believe is heading for a cyclical downturn with margins and profits likely to be squeezed by increased sugar refining capacity in the US.

Greencore's balance sheet is in good shape with a small net cash position expected at its September year-end, so investors will be expecting that comfortable balance sheet to be put to some good use. It is doubtful whether ploughing a lot of money into Imperial Holly would come into that category.

The other options are to invest heavily in the British food sector where Dalgety and Harrisons & Crosfield (H&C) are selling off various assets. Dalgety, it seems, wants to sell off its Lucas Ingredients and Spillers Milling operations as a single entity while H&C has Paul's Malt on the block.

Both Kerry and Greencore have indicated that they are interested in Lucas and in Spillers, but few really believe Denis Brosnan wants a flour milling company or David Dilger an ingredients business. But they may be forced to bid for all of the Dalgety operations and then sell off the bits not wanted. Hopefully, Greencore will be involved somewhere in the shake-up in the British food industry. Otherwise, shareholders might justifiably feel that they are owed a share buy-back.