Greencore at five-year high despite Moody's warning on UK spending
INVESTORS are betting that Irish food group Greencore can shrug off crimped consumer spending in the UK this year as ratings agency Moody's predicts a squeeze on retailers' sales and margins.
Greencore's shares rose over 1.8pc in London yesterday to their highest level in over five years, edging its market capitalisation to almost £1bn (€1.2bn).
Moody's has predicted that pressure on UK consumer spending will only ease towards the end of the year.
Greencore is one of the biggest suppliers of ready meals and sandwiches in the UK. It counts major grocery multiples among its biggest clients.
But Moody's said that food retailers were likely to remain under pressure all year.
"We anticipate pressure on UK consumer spending to only ease in the latter part of the year as economic growth gradually improves," said Yasmina Serghini-Douvin, Moody's vice president, senior analyst and author of the report.
He added: "In the meantime, price-conscious consumers will remain attracted to promotions and hard discounters and are unlikely to increase their average spend.
This is likely to result in downward pressure on many UK food retailers' sales and margins for much of 2014."
Analyst Damian McNeela, at broker Panmure Gordon, told the Irish Independent he believes Greencore will weather the storm because of its leading position on the food-to-go market in the UK.
"The food-to-go market has continued to outpace the broader food market and that will continue in 2014," he said, adding that the segment is expected to expand by a mid-single-digit rate this year.
Mr McNeela also said that more multiples were starting to expand their smaller retail offerings, opening smaller store formats on high streets, for example.
He said those stores lent themselves to food-to-go offerings, so playing into Greencore's strengths. Mr McNeela also said that while sales of ready meals were hit by the horsemeat scandal last year, the continuing impact on sales was a blip. The segment was set to perform well in the medium to long term.
Chief executive Patrick Coveney also said in November that he expected Greencore to see growth in the UK this year.
The company is due to issue an interim management statement next Tuesday. Davy Stockbrokers believes that 2014 will be another year of "operational and financial progress" for Greencore.
The food company generated £1.19bn (€1.44bn) in revenue in its last financial year and a group operating profit of £76.5m (€93m).
Mr Coveney has been expanding Greencore's footprint in the United States, where it has supply deals with chains including Starbuck's and 7-Eleven.
Revenue at its US arm jumped 60pc last year. However, Greencore still generates the bulk of its turnover in the British market.