Thursday 30 March 2017

Essenta will be well placed to stand test of picky consumers and rising prices

Donal O'Donovan and Peter Flanagan

THE PROPOSED merger of Greencore and UK rival Northern Foods to form Essenta has been touted in one form or another since the early 1990s. Yesterday, the news lifted the shares of both companies.

It addresses long-standing question marks over each name, in particular Greencore.

Those questions have kept Greencore's share price stubbornly low despite excellent profitability and a well-regarded management team, led by Patrick Coveney.

Greencore's relatively small size and its vulnerability to fluctuations in exchange rates have been real concerns. With the merger comes the scale needed for real clout in dealing with the UK's famously aggressive supermarkets. The combination will be a major supplier of multiple products and should be better able to resist pricing pressure at a time when margins are under pressure from pickier consumers and rising commodity prices.

The combined business will report its income in sterling. A primary listing of Essenta in London means it will become part of the FTSE 250 index of the UK's biggest shares.

The terms of the deal look to be a triumph for the Irish firm.

Northern Foods has been hammered this year, its stock falling nearly 40pc since January. "On an embedded value basis however, Northern's valuation is €630m versus Greencore's €500m," according to NCB Stockbrokers.

Irish Independent

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