EUR 57.00 For Business Accounts Only

Greencore - Lunch! Exhibition Reaffirms UK Momentum

British Sandwich Association led Food to Go trade fair “Lunch!” opened at the Excel Exhibition Centre in London yesterday. Key messages in the plenary sessions remain positive for Food to Go category volume growth. Lunchtime purchases should remain the strongest performer. Costs remain a concern - not just labour but also some key ingredients - notably butter.

In our view Greencore (GNC LN, BUY, T/P 310p), which transacts 55% of its business in the UK, is well placed to resist input cost pressures, largely because of its scale and clear leadership. The group should be best positioned in terms of procurement. Moreover, it is the salient listed play on the UK industry's sustained growth. Cranswick (CWK LN, HOLD, T/P 2700p) benefits from being an ingredients provider, notably poultry from Benson Park.

Simon Stenning, Executive Director of consultancy MCA presented "The Food to Go Market Report." There is a clear slowdown in the eating out market. Having grown by 2.5% in 2016 it slowed to 2.0% in 2016 and is expected to expand at a 1.7% pace this year. However, lunch was cited as the most resilient meal consumed outside the home. Value for money and work related necessity continues to support the lunch to go market.

Elsewhere, key themes remain value for money and some concern about input costs. In terms of taste celebrity chef Theo Randall, who presented on “Innovation in Sandwich Design,” echoed the importance of product quality and value for money. However, variety and provenance were also cited as essential. Again, Greencore’s scale helps it meet these kinds of challenges. Furthermore, “flexitarianism” – whereby consumers become part time vegetarians and vegans - appears likely to grow in importance with positive implications for scale providers.

While investors arguably need to gain more confidence in Greencore's US activities for the stock to re-rate upwards, the UK operations should continue to perform well. There is a strong argument that Greencore USA is particularly well placed as solution provider for the larger US food manufacturers. We base our price target on an 18x calendar 2018 P/E ratio. BUY.