Investors hungry for a stock with positive earnings momentum and which has racked up 33 years of unbroken dividend growth should buy Cranswick (CWK), a key supplier of pork and poultry products to supermarkets including Tesco (TSCO), Sainsbury’s (SBRY) and Marks & Spencer (MKS).

Admittedly the consumer backdrop is tough, but Cranswick’s retail customers are outperforming peers. Notably Britain’s biggest grocer Tesco, which recently called out UK food as being ‘particularly strong’ in a positive read-across for Cranswick this Christmas.

Meanwhile, the potential of Cranswick’s pet food business remains underappreciated and analysts at Berenberg have a £46.20 price target which implies meaty upside of 30%. Shares sees scope for further earnings forecast upgrades, potentially as early as the first half results on 21 November.

PROTEIN-POWERED GROWTH

Food manufacturer Cranswick supplies the retail and food-to-go sectors with everything from joints, gourmet sausages and gammon to air-dried bacon and pigs in blankets. It grew revenues by 14.7% in the first quarter to 24 June with demand remaining ‘resilient’ in core categories.

Cranswick continues to win share in the pork market, where constrained pig supply means prices are expected to remain high; the firm has pedigree in successfully passing these prices on to customers.

The company has also built scale in poultry, the big winner from the cost-of-living crisis as shoppers trade down from pricier alternative proteins.

One exciting yet overlooked growth opportunity for Cranswick is pet food, a market it entered in January 2022 following the acquisition of Grove Pet Food, which produces dry dog food, supplies stores such as Pets at Home (PETS) and whose products are well placed to benefit from ‘premiumisation’ and the ‘humanisation’ of pet foods.

Berenberg expects Cranswick’s pet food position will be aided by its ‘strong relationships with UK supermarkets’ and argues successful expansion into pet food is ‘likely to present a re-rating opportunity, with a higher multiple placed on the pet food businesses’.

RISKS TO CONSIDER

Risks to consider with Cranswick include the potential for disease outbreaks, which could result in loss of pig or poultry meat supply. Also, since the bulk of Cranswick’s products are positioned as premium, volumes could come under pressure should the cost-of-living squeeze drag on.

Reassuringly, Cranswick is a cash generative company with fairly low leverage and the balance sheet firepower for further acquisitions. For the financial year to March 2024, Berenberg forecasts a pre-tax profit rise from £140 million to £161 million, fattening up to £176 million by 2025.

Based on this year’s earnings and dividend per share estimates of 222p and 83.3p respectively, the shares trade on a prospective price to earnings ratio of 16 times and offer a yield of 2.3%.

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