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Cash-generative pork and poultry processor is a tasty pick for uncertain times
Thursday 08 Feb 2018 Author: James Crux

An equity market sell-off should remind investors of the need to include some high-quality, cash-generative growth stocks in a well-balanced portfolio.

Buying shares in the current market will take some nerve given the heightened volatility. As such, you should only make new investments if you feel comfortable about the market backdrop and understand the risks.

If you’re happy to proceed, we believe a good starting point is fresh pork-to-premium cooked poultry products supplier Cranswick (CWK). The food producer has an unbroken dividend growth track record stretching back to 1990, a reflection of a well-run business.

Over the past decade, Cranswick’s UK pork revenue has fattened up impressively from around £500m to north of £1bn per year, aided by investments in boosting pig-processing capacity and in new product capability.

The £1.5bn business has also built scale in the poultry market through two acquisitions: 2014’s Benson Park and 2016’s Crown Chicken.

Investment bank Berenberg expects Cranswick to deliver substantial organic growth from pork and the convenience channel over the coming years.

POSITIVE TRADING UPDATE

Hull-headquartered Cranswick reported (1 Feb) a strong performance for the third quarter including Christmas with trading ‘slightly ahead’ of management’s expectations. Its total and like-for-like sales were both ahead of the prior year.

Impressively, each product category delivered positive volume growth, supported by new business wins in both pork and poultry and with bacon proving a standout Christmas performer. Total export sales were also ‘well ahead’ with China proving a strong market for off-cuts including chicken feet.

HEADWINDS TO CONSIDER

After 18 months of rising UK pig prices, the market is now deflationary. This trend could prove a headwind for selling prices. However in the short-term, lower pig prices could potentially boost Cranswick’s margins, given the usual lag in pricing pass-through to customers.

Cranswick continues to take market share via organic and acquisitive means. Its focus on premium or super premium products is serving it well while investing in manufacturing capabilities.

The business continues to invest for growth, but retains significant financial flexibility with little net debt expected at year end, says investment bank Investec.

‘Despite the record levels of capex, we still anticipate the company’s net debt will fall slightly from £11m to £9m this year,’ chips in Berenberg. It believes Cranswick has significant financial capacity to make acquisitions.

For the year to March 2018, stockbroker Shore Capital forecasts pre-tax profit to grow by 18% to £90.7m. It expects the dividend to increase by 15% to 50.8p. For the following year it forecast £95.5m pre-tax profit and 54p dividend. (JC)

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