Late last week the Greencore Group (LON:GNC), the world’s largest sandwich maker, announced that it is taking the precautionary step of recalling various sandwiches, wraps and salads because of possible contamination with E. coli, it has not been detected in those products, but they are being recalled as a precaution.

The products called back were supplied to ASDA, Morrisons, Sainsburys, Boots, Aldi, Amazon and the Co-op.

Greencore is not alone, because two other food manufacturers have also recalled their own products.

UK Health Security Agency Statement

The UKHSA is working with partners to investigate a Shiga toxin-producing E. coli (STEC) outbreak.

Darren Whitby, Head of Incidents at the FSA, said: 

“Sandwich manufacturers are taking a precautionary measure to recall various sandwiches, wraps, subs and rolls in response to findings from investigations by the Food Standards Agency (FSA), Food Standards Scotland (FSS) and UK Health Security Agency (UKHSA) who are working to identify the cause of an ongoing outbreak caused by shiga toxin-producing E.coli (STEC).

This is a complex investigation, and we have worked swiftly with the relevant businesses and the local authorities concerned to narrow down the wide range of foods consumed to a small number of salad leaf products that have been used in sandwiches, wraps, subs and rolls.

Following thorough food chain analysis, these products are being recalled as a precaution. 

Infections caused by STEC bacteria can cause severe bloody diarrhoea and, in some cases, more serious complications. We therefore advise any consumers who have any of these products not to eat them.

The FSA is here to ensure that food is safe.

If there are products on the market that are not, we won’t hesitate to take action to remove them.”

The Business

Based in Dublin, the Greencore Group supplies all of the major supermarkets in the UK, as well as convenience and travel retail outlets, discounters, coffee shops, foodservice and other retailers.

It holds strong market positions in a range of categories including sandwiches, salads, sushi, chilled snacking, chilled ready meals, chilled soups and sauces, chilled quiche, ambient sauces and pickles, and frozen Yorkshire Puddings.

In the year to end December 2023 the group manufactured 779m sandwiches and other food to go products, 132m chilled ready meals, 45m chilled soups and sauces and 245m jars of cooking sauces, pickles and condiments.

The company carries out more than 10,400 direct-to-store deliveries each day.

It employs some 13,600 people in its 16 world-class manufacturing sites and 17 distribution centres in the UK, with industry-leading technology and supply chain capabilities.

Q3 Trading Update Soon

In just over a month’s time, we should be seeing the group declare its Q3 Trading Update, covering the thirteen weeks to end June.

Interestingly there have been no active short positions notified recently.

The shares were just 112.90p on 29^th March, which was when I featured the group suggesting that the shares were too cheap.

They touched 139.40p just before the Interims Results were announced on 21^st May.

Since then, they have been up to 178.60p – but the ‘e-coli news’ on 14^th June saw them fall back to 160.20p that day, on the back of some 4.44m shares traded.

So Where Are They Heading Now?

Between now and the Q3 Update later next month the shares could easily sway in waves of uncertainty in the market as to just how the ‘rogue salad leaves’ have hit business.

I remind readers that analysts Clive Black and Darren Shirley a Shore Capital Markets were impressed enough on the Interims to upgrade their estimates by 5% for the full year to end December.

They were looking for £65.0m (£55.5m) adjusted pre-tax profits for the year, worth10.2p (8.9p) earnings per share.

Further out their 2025 figures suggest £72.0m profits and 11.6p per share in earnings.

On 21^st May the group announced a £30m Share Buyback Programme and has subsequently purchased around 2.75m shares for cancellation, with the highest price paid being 177p per share, it bought 280,000 last Friday at an average 163.23p per share.

The question now asked by investors is whether they are now stalling in price, or whether they have further to fall back awaiting further news on the product recall and its effects.

There was a share price recovery in Clontarf Energy (LON: CLON) after it published 2023 figures. The share price rebounded following the disappointment in Bolivia. It failed to move through to the next stage of the bids for the seven priority salt pans in southern Bolivia. There was nearly £183,000 of cash in the bank at the end of 2023 and a further £700,000 has been raised since. The share price jumped 148% to 0.0385p.

Landore Resources (LON: LND) has raised £3.68m at 2.4p/share with strategic investor Luso Global Mining, a subsidiary of Mota-Engil, subscribing £1m. Alexander Shaw, who is the boss of the new investor will become chief executive of Landore Resources. The cash will fund drilling at the BAM gold project at Junior Lake in northwestern Ontario. The share price recovered 62.5% to 4.55p.

Phosphate producer Kropz (LON: KRPZ) said that it knows no reason for the share price rise earlier in the week. There has been additional trading in shares since last week and the price has fallen back from 3.25p at one point, but it is still 53.7% higher at 1.875p.

Baron Oil (LON: BOIL) non-exec Dr John Chessher acquired an initial six million shares at an average price of 0.0864p each. The share price improved 43.7% to 0.102p.

FALLERS

R&Q Insurance Holdings (LON: RQIH) is still trying to complete the sale of its Accredited business. Costs are mounting up as talks continue with regulator and other parties and it is hampering the overall business. This has hit the financial stability of the business. There could be an alternative to the original Accredited deal, but that involves the liquidation of the holding company. Slater Investments has reduced its stake from 11.7% to 10.3%. The share price slumped 91.6% to 0.12p.

Cash shell Cloudified Holdings (LON: CHL) has failed to secure a reverse takeover and trading in the shares was suspended on 13 June. Prior to that the share price dived 43.8% to 2.25p. There is six months to find a deal and potential acquisitions are being assessed. There is £425,000 in the bank and costs are £23,000/month.

Deltic Energy (LON: DELT) has been unable to find a partner for the Pensacola project in the North Sea. This means that Deltic Energy cannot finance its share of the development costs and it is withdrawing from the licence and transferring its 30% share to Shell and ONE-Dyas. Canaccord Genuity has reduced its NPV10 target price to 100p. The share price slid 36.5% to 8.25p.

Helium One Global (LON: HE1) has raised £8m at 0.5p/share. This will finance the deepening of Itumbula West-1well and the extended well test, as well as the development of the helium project in Tanzania. The extended well test should start in the third quarter. The share price fell 34.8% to 0.75p.

In our last note we felt that the minor selling that had materialised could have been the start of another minor leg lower, so this is the first time in the past couple of months that we have got the sentiment wrong.

As the index has actually managed to reverse course quite quickly and moved back to post fresh all time highs in recent days. So that is the good news for the bulls. The bad news is that rather than being entirely wrong we may have just been a little premature.

As now the market again does look vulnerable to some profit taking. Some more bearish macroeconomic notes have come out of Wall Street in recent days highlighting how the recession, long heralded by the inverted yield curve, may finally be showing some signs of emerging. As the US economy does start to show some early signs of slowing. 

Can the Fed cool the economy enough to tame inflation while avoiding a harder landing? So far the market has priced in a very positive yes to this question. As any doubts emerge on this view however there is considerable space for downside moves.

To be clear we are not calling the top of the market here, but what we are suggesting is that some chinks in the armour to the soft landing argument have gathered pace in recent days, and while consumer sentiment is strong there are signs that suggest that this is late stage buying interest and that some early institutional investors in this bull run have already been taking profits. 

We do feel it is warranted therefore to flag up that there is the potential for this profit taking selling to gather pace, which could drop the market back into the previous channel in the coming days. Leaving a more cautious take profit stance for the week ahead.

The FTSE 100 was slightly weaker on Friday as investors took a step back from equities and assessed what has been a busy week for economic data, politics and corporate updates.

London’s flagship index was down 0.4% at the time of writing amid heavy selling of European equities that continued declines on the back of a surprise snap French elections that threatens to provide a platform for far-right nationalists that are opposed to the European project. The French CAC plummeted 2.5% as the German DAX fell 1.3%.

Heavy selling of European stocks followed reasonably robust US trading overnight, which helped the FTSE 100 swerve most of the European downside on Friday.

“Yes, we’ve seen several days of choppy trading on the markets but a robust session on Wall Street last night and resilience on the FTSE 100 at the end of the trading week doesn’t portray a picture of an investor with their head in their hands,” said Russ Mould, investment director at AJ Bell.

There has been a clear divide this week between mainland European stocks trading on political concerns and US and UK that continue to be driven by interest rate expectations.

Interest rate hopes

The Federal Reserve provided little insight into the timing of interest rate cuts at this week’s meeting, which would have disappointed some market participants.

That said, CPI data provided a dash of optimism that inflation was falling and the Federal Reserve would soon have the right economic conditions to warrant a cut.

This optimism kept a lid on any selling of US stocks, and investors are likely to remain positioned for a rate cut by sticking with long equity bets in the coming weeks and months. Strength in US stocks – should it be maintained – will help support UK equity sentiment in the coming week as investors look forward to the Bank of England’s interest rate decision on Thursday.

Tesco

Tesco was the made corporate story of the day with the group proving it has what it takes to fight of discount rivals amid the cost of living crisis by producing 4.6% sales growth in its last quarter.

“The UK’s biggest supermarket, Tesco, has announced trading is in-line to hit full year expectations,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

“Crucially, in the first quarter, volumes continued to grow, which is an important milestone during slowing inflation. The emphasis on value for money is evident and has become markedly more pronounced in recent times. This is helping to attract and retain customers, but doesn’t come cheap. Convincing customers to put a higher number of items in their trolley is therefore the aim of the game. There’s recently been a launch of summer menu items, which sounds good in theory, but the very poor weather could put a pin in that BBQ-flavoured balloon.”

Crest Nicholson shares surged higher on Friday after the housebuilder announced it had received a bod from rival Bellway.

Just a day after Crest Nicholson took an axe to its dividend and profit forecast, sending shares sharply lower, its peer Bellway has announced an approach to potentially acquire a struggling competitor amid a broad market downturn.

In a move to strengthen its position in the UK housing market, Bellway made a non-binding all-share offer to acquire Crest Nicholson in early May. As one would expect with such an opportunistic bid, Crest Nicholson’s board rejected the proposed deal, saying it significantly undervalues the group.

The offer valued each Crest Nicholson share at 253p, representing a 30% premium to the company’s share price when the offer was initially made.

Under the terms of the offer, Crest Nicholson shareholders would receive 0.093 Bellway shares for each share they hold in Crest Nicholson. Based on Bellway’s share price of 2,718p at the close of business on June 13, 2024, the offer also represents a 20.5% premium to Crest Nicholson’s 3-month volume-weighted average price.

Bellway’s board believes that a combination of the two companies would bring together the strengths of each business. Crest Nicholson’s board are not buying it and has rebuffed the approach. Bellway have until 11 July to make a formal bid. On the face of it, such a tie-up would make little sense for Crest Nicholson shareholders.

Tesco shares perked up on Friday after the supermarket reaffirmed it profit guidance for the year as the group continued to grow market share.

Shares rose over 1% on Friday as Tesco reiterated guidance of adjusted operating profit of £2.8bn for the year after group sales grew 4.5% in the 13 weeks ended 25 May 2024.

“Tesco has maintained its profit guidance in this morning’s trading statement as underlying UK sales for the supermarket rose by 4.6% in the first quarter,” said Mark Crouch, analyst at investment platform eToro.

“Despite higher inflation vexing the sector, Tesco has stood fast and knuckled down on quality and value. By utilising the Clubcard scheme and offering a wider range of food products, Tesco managed to increase their market share in 2024.”

The key for investors is top-line growth. It’s accepted that there is little that can be done with margins in the current environment, so the main source of earnings growth will be top-line expansion. In this respect, there is a lot to encourage investors in today’s update with the group using its loyalty scheme to fight off the threat of the discounters.

“Tesco has done exceptionally well to grow market share given rising competition. Its full-line offering sets it apart from the likes of Aldi, and its product proposition puts it ahead of other big names,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown

“Tesco’s enormous scale means it operates more like a utility in some respects – everyone needs to put dinner on the table and an increasing number of customers are buying that at a Tesco. That helps underpin a reasonably generous dividend yield, too. Moving forwards, investors will want to see further growth kicked out from wholesaler Booker – as well as a clearer understanding on what the next chapter looks like for food.”

 Tesco will report interim results on Thursday 3 October 2024.