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Crawshaw’s meaty growth menu
Use weakness at butcher and food-to-go retailer Crawshaw (CRAW:AIM) as a buying opportunity at 30.13p. Returned to positive cash generation after a tough period, Crawshaw’s tie-up with 2 Sisters is a potential game-changer, offering a catalyst for strong top and bottom-line growth.
Results for the year ended 29 January 2017 from the fresh meats-to-filled baguettes seller with Yorkshire roots revealed a widened loss of £1.4m (2016: £300,000) and a 7.3% like-for-like sales slump, although group sales rose almost 20% to £44.2m driven by store expansion. Operating value-for-money stores across the Midlands and North of England, the £23.3m cap has seen increased competition and also implemented pricing and range changes that confused customers.
The good news is same-store momentum recovered through the second half and into the first 10 weeks of the new financial year. Deeper promotions, winning marketing initiatives and allowing local store managers to trade their shop to suit local tastes is driving a bounce back in customer numbers.
The new development in the Crawshaw story is a transformational three year supply agreement inked with meat and food producer 2 Sisters with a 50/50 equity split.
The deal gives Crawshaw access to a greater range of quality-yet-keenly priced meat, poultry and other grocery products for its customers. It also aims to reduce the levels of 2 Sisters’ food that would otherwise go to waste; Crawshaw can take quality produce that is surplus to the requirements of 2 Sisters’ supermarket customers.
Under the tie-up, food tycoon and 2 Sisters boss Ranjit Boparan is investing an initial £5.1m at 15.2p for a 29.9% stake in Crawshaw and has a warrant to acquire another 20.1% at the same price, should Crawshaw’s shares recover to more than 40p.
Boparan also becomes an advisor to Crawshaw, guided by former Lidl man and CEO Noel Collett, whose beefed up balance sheet and enhanced supply means it can restart its new store opening programme.
The initial focus will be on Crawshaw’s standalone fresh meat factory shops, generating higher returns and better like-for-like sales than its other store formats.
Significantly, former Poundland CEO Jim McCarthy is also joining Crawshaw as chairman. Under the leadership of the retail luminary, Poundland’s EBITDA grew from around £7m in 2006 to circa £57m in 2016, before the business was sold to Steinhoff International in the same year for £750m.
We see the 2 Sisters tie-up as a turning point for Crawshaw and we’re also excited by McCarthy’s appointment. Buy at 30.13p.