Cranswick brings home the bacon

Pig prices followed more normal seasonal patterns in what was a trouble-free first quarter for Cranswick. And with volumes growing and the company on track to eliminate net debt by year-end, shares in the sausage maker still look tasty.

Revenue grew by 5% in the three months ended 30 June and adjusted operating margin was on a par with last year at 5.4%. Pig prices are down at between 160p and 165p per kilo from 172p per kilo last summer.

A "seasonal uplift in working capital" meant net debt had almost doubled since March to £33m, although that's still £22 million less than this time last year.

Cranswick has almost finished increasing capacity and improving efficiency at its Delico cooked meats facility in Milton Keynes. The chilling system in the Norfolk primary processing facility is also being upgraded, and aims to achieve similar results.

Currently, broker Investec Securities reckons the company will end the year to March 2015 with little or no net debt. That provides the business with plenty of firepower for acquisitions to grow market share.

"A solid start to the year," says Investec analyst Nicola Mallard. "The balance sheet remains in good shape to fund investment in existing assets or new assets should any acquisition opportunities arise."

Investec currently forecasts full-year adjusted pre-tax profit of £55.3m, giving adjusted earnings per share of 88.2p, up 5% on last year. Expect mid-single-digit growth in both earnings and the dividend after that, says the broker.

At 1,260p, Cranswick trades on a forward price/earnings multiple of just over 14 and an EV/EBITDA of eight, which looks about right for the growth currently on offer.

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