Shares in convenience foods giant Greencore (LSE: GNC) crashed heavily this week. The Greencore share price slumped more than 15% on Tuesday, and it’s down a fraction more as I write. It’s all in sharp contrast to the stock’s performance so far in 2021, and a 45% gain — until this downturn, that is.
Greencore just posted a £7.9m pre-tax loss for the first half of its current year. That’s on an adjusted basis, and comes from a 19% fall in revenue. The bottom line shows a loss per share of 1.4p. And in cash terms, we saw a free cash outflow of £23.6m. The one bright spot is debt, which (excluding lease liabilities) fell during the period by £79.2m from the end of last year, to £271.3m. That’s not through operating performance, mind, as the company raised £90m in an equity placing in November.
Greencore share price valuation?
Greencore’s net debt to EBITDA ratio might make some eyes water, at 7.2 times. But that is, hopefully, a one-off. Looking back to the same point a year ago, the same multiple stood at just 2.1 times. That’s a lot better, but I get twitchy over companies with ratios much above 1.5 times. Still, I’m not going to read too much into it at this point. But I do wonder what long-term effect it might have on the Greencore share price.
The company sells food to go, including sandwiches, sushi, snacks, soups, and things like that. Those are big business for the lunch crowds during normal times. But when the same consumers are locked down at home and not buying? Well, I could see these latest results as not too bad in the circumstances. Still, judging by the Greencore share price tumble, investors don’t agree with me.
Better second half expected
The company is optimistic about the rest of the year. I know, they always are, but I do find it plausible. If the UK continues its reopening along the lines of current plans, Greencore says it expects “to generate a FY21 Adjusted Operating Profit outturn above FY20 levels“.
What about the Greencore share price now? Does it represent good long-term value? If the company can get its earnings back to 2019 levels, we’d be looking at a price-to-earnings of under nine. Do I think that will happen? The food-to-go market has been growing steadily over the longer term, and I expect that trend to resume.
No obvious liquidity problem
Greencore is in a comfortably liquid position. At 26 March, it had cash and undrawn committed debt facilities of £302m. That looks like more than enough to see the company through to profits again. I’d like to see it use as little of the debt facility as possible, mind. And that is one of the risks I’ll be keeping an eye on. I’ll want to see what the year-end debt to EBITDA figure looks like, and which direction it’s likely to be going after that.
But right now, even with the uncertainties of the rest of the year, the Greencore share price looks like a buy to me. It’s on my list of potentials for my next investment.
