City fattens up Cranswick forecasts

Better than expected first-half results helped sausage-maker Cranswick reclaim ground lost late last week. And although chief executive Adam Couch expects more food price volatility and its fresh pork sales slowed, Christmas is fast-approaching and analysts expect the company to stage a tasty sales turnaround.

Revenue inched lower to £481.5 million in the six months to September, but an improvement in underlying operating margin to 5.4% drove adjusted pre-tax profit up over 11% to £25.8 million. This gave earnings per share (EPS) of 41.1p, up 7%. Net debt fell by over a third to £22.4 million and dividend grew to 10.6p.

"Cranswick's first half sales performance was a tale of two quarters, with the first quarter sales up 5% followed by a 5% decline through the second quarter," said house broker Shore Capital. "Management has again reiterated the temporary nature of the sales slowdown, with the lost Fresh pork volumes now returning to the Cranswick fold."

But management is pleased with the numbers, despite changes to consumer habits.

"There have been well-publicised changes in consumers' food shopping habits, including smaller but more frequent shopping trips and reductions in food wastage," the company said. "Along with increases in market share for the convenience sector and the growth of limited assortment discounters, this has impacted food sales at the major grocery retailers and added to the pressures in the competitive environment in which we operate."

Operationally, Cranswick had a positive six months, too; the extension of its Delico cooked meats facility was completed on time and to budget and the significant upgrade to its fresh pork site in Norfolk made headway, and is nearing completion.

Since the first half, Cranswick bought poultry producer Benson Park Limited as part of its expansion strategy. The move has won the confidence of its Shore Cap, which has upped its pre-tax profit guidance to £56.4 million for the full 2015, generating EPS of 90.5p. As reported earlier this month, Cranswick's growth strategy is focussed around four pillars; market penetration, channel development, diversification and international expansion.

After recently finding support at the 50-day moving average, see chart, Cranswick trades on a full-year 2015 price/earnings multiple of 15.5, dropping to 14.3 for 2016 times.

"We have been consistent in our view that Cranswick represents a core holding in the UK small-mid cap arena, with a well invested industry leading manufacturing/processing infrastructure, a talented and experienced management team, excellent cash generation and very robust balance sheet (with very limited pension exposure we should add)," said Shore Cap analyst Darren Shirley. "Such traits support corporate ambitions and opportunities across retail, foodservice and international markets, as evidenced by the recent Benson Park and Kingston Foods’ acquisitions, and investment in pig rearing."

Investec Securities thinks the shares are worth over 1,600p.

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