Greencore (LSE: GNC) isn’t a household name but chances are good that you’ve recently eaten the sandwiches, sushi and other prepared meals the company provides to the likes of Sainsbury’s, Boots and just about every major grocer. The sheer ubiquity of its foods (it controls roughly 65% of the UK food-to-go market) has been a boon to business and shareholders alike with the company’s shares up 330% in value in the past five years.
I believe this stellar record is set to continue as it adds to its dominance in the UK with a fast growing business in the US. The company’s American assets accounted for roughly 15% of sales last year but this figure is set to rise to around 45% in the year ahead thanks to the recent $747m purchase of Peacock Foods.
This is a major acquisition for a company whose market cap is around £1.6bn but makes a great deal of sense. Owning Peacock will be accretive to earnings next year, quadruples Greencore’s manufacturing footprint in the US and, even more importantly, provides an entry into the multibillion dollar US grocery store market.
Greencore has previously been outside this market with its biggest customers being 7-Eleven and Starbucks but it will now be a major player in two of the fastest growing sectors of the US grocery market. And I have few fears that it will prove unable to integrate Peacock quickly as the management team has a very good history of pulling off big acquisitions smoothly, such as the £113m purchase of sandwich maker Uniq in 2011.
Stellar growth prospects ahead in the US, a dominant market position in the fast-growing UK food-to-go market, and a reasonable valuation of 15 times forward earnings make Greencore one mid-cap I’d love to buy in March.
You can’t beat a near monopoly
A dominant market position is the same reason my other top mid-cap is housing portal Rightmove (LSE: RMV). Few Britons need an introduction to the company as it has a whopping 77% share of the domestic market for online housing searches.
More encouraging is the fact that management hasn’t squandered this lead over other portals and continues to iterate and add on new options that keep consumers connected. This is why property agents are desperate to list their clients’ properties on Rightmove, which unsurprisingly leads to hefty pricing power for the portal.
In H1 2016 it increased revenue per agent by an average 12% compared to the prior year, to £830 per month. Rising prices and an asset-light business model mean big profitability for the firm with operating margins rising to 74.6% in the period.
Although the housing market is highly cyclical Rightmove is quite well protected thanks to charging agents a monthly fee rather than per listing. This means revenue isn’t tied to the volume of listings and that as long as agents remain in business, the company will benefit. With shareholder returns rising, a dominant market position and margins to match, and a great management team, this is one mid-cap I’d happily own for years to come.
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Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Greencore. The Motley Fool UK has recommended Rightmove. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.