Ok, well, it's been a while since I found anything worth writing about, but this seems like it might be worth the time, so here goes. Be forewarned, the recent acquisition makes for a lot of yapping to get what I was thinking about across, so sorry about that. Also, I likely have a non-zero amount of bias, as the last two food businesses I did a write-up on here about have performed nicely, so that might make me overly optimistic:
Greencore is a food preparation / distribution company who was around 2/3 "food for now" (sandwiches in gas stations, premade salads or sushi in grocery stores, etc), and 1/3 "food for later" (chilled "ReadyMeals", soups, whatever a yorkshire pudding is :) ). They recently acquired Bakkavor, who was 100% in the "food for later" category (frozen pizzas, chilled full meals, etc). By revenue, the combined company will now be closer to 50/50. I should note, they are the manufacturer, also selling their products to large chains as the store-brand food products. So, this is not the type of food brand conglomerate that has negative tangible equity that results from acquiring brand companies (though they do have a decent amount of debt, more on that later), at a time when shoppers will skip the brand name to save some money. In my mind, this seems like a relatively predictable industry, though covid sure kicked the crap out of the "food for now" segment when people weren't leaving their homes.
The acquisition was funded by both new debt as well as share issuance (prior Bakkavor shareholders got a partial Greencore share and some cash) so I thought, since the industry is relatively slow to change, one thing I'd want to get an idea of was the combination of each company's recent net income, less estimated interest expense on the new debt, divided by the total shares now in existence.
In addition to that, Greencore talks about estimates for cost-savings, which makes sense (deliveries to the same stores, management cuts, etc), and that becomes reasonably important. I did look into their past estimates (pre-acquisition) for things like Adjusted Operating Income, Operating Margin, etc, and they seem to usually meet or exceed their targets. So I did deduct their cost saving estimates (which ramp up from 2026 to 2029).
Using the last full year of operations for each company when separate (2024 for Bakkavor, and 2025 for Greencore), less interest on buyout debt (net of tax savings) + redundancy savings (less tax), all over shrs\_outstanding, I get:
2026: 17.1p, 2027: 19.9p, 2028: 22.9p
(data for Bakkavor was fetched w ai, as I don't know how to find data for companies that are no longer listed)
This would be a good time to add this display, which I think is quite useful. Looks like analysts are predicting a bit better. But, they're not predicting any massive increase in business, this is what earnings would look like if the combined businesses grew slightly, and the estimated cost savings come to pass.
[https://imgur.com/a/RDjsgOC](https://imgur.com/a/RDjsgOC)
**Insider Transactions:** large amount of open market insider buying this year, mainly from the chair of the board.. the largest portion at a price not meaningfully less than current market price. According to my tests, insider buying is a weak, but positive, predictor of short term price movements. But, for situations like this, where I am less certain about the future, due to a large number of "moving parts", I do like the vote of confidence.
[https://imgur.com/a/8esSSSv](https://imgur.com/a/8esSSSv)
**A Quick Note on FCF:** I have focused on Earnings in this, as FCF is a pain for IFRS-regulated businesses (if unfamiliar, I wrote on the subject here, titled 'Beware FCF' I believe). I did calculate it for several years (hopefully correctly), and a comparison to Net Income. Also compares Depreciation of P,P&E (since the normal value includes dep of intangibles and lease liabilities) to capex. The stupid treatment of leases started in 2019, when they were mostly done their business year, which is why 2019's adjustment is small, and none for 2018.
These are just Greencore, prior to acquiring Bakkavor, as that came after their 2025 year finished.
[https://imgur.com/a/9iK0WRW](https://imgur.com/a/9iK0WRW)
**Things to be cautious of:**
\- you'll note I just based that "how will the merged company look" on very recent earnings data. I don't like doing that, but there is a decent period of abnormalities prior. Of course covid disrupted the in-store convenience market. But, prior to that, they had attempted to expand into the US via an acquisition, and that went poorly. This is why there was a large gap between statutory and adjusted eps in 2017-2019, when they exited. So, unfortunately, there is not a long stable history to help make future projections easy. They did seem to learn their lesson though, at least about the US market. In the acquisition of Bakkavor, they are selling off it's US division to just keep it's UK operations, where combined, they will be the largest player.
\- debt is a real thing for these guys. If we pencil in 1% higher rates in the future, that would cost \~$10m pounds / yr. But, that is only around 1.5p out of eps, so not the end of the world at that level. Of course, that also discounts the value of future cash to a greater extent, but that is the same for all businesses, so up to your own judgment there.
\- UK unemployment. Covid demonstrated that can take a good bite out of net income when it shifts massively. But small movements will still have small impacts, so worth keeping an eye on.
**My thesis (so far):** I don't really think this is a "hold forever" type of company, though I also wouldn't rule it out yet. So long as people in the UK continue to be working and busy, there will be a market for the convenient-but-not-completely-junk food. And, if the earnings estimates come to pass (which seems reasonably likely to me, as long as things continue to be business-as-usual), there's good growth there in the near term, and then w the removal of the uncertainty, it seems reasonable that the stock will also likely shift back towards it's prior 15-20 earnings multiple (+/- what rate changes do to that). At a 17.5x multiple to 2028 estimated eps, that'd put the stock at 470, from about 250 today. There are a number of "if"s there of course, but it doesn't seem unlikely, if you (like me) currently have more cash than ideas.
I don't own any yet, but will likely buy some soon, once I think about rate movements a bit more.
