FTSE 350 Food producers & household products: Meaty returns from emerging markets

Cranswick will inevitably benefit from rival Vion's exit from the UK food market, while stricter EU animal welfare regulations, coming into force this month, will push up pig prices on the continent, making European pork less competitive in the UK, where welfare standards are already high, and enabling Cranswick to more easily claw back any raw material cost increase from customers. Overseas, the food producer has been given approval to export pork products to China, which is already boosting sales growth.

In fact, China accounts for 50 per cent of the world's pork market and demand for western-style sausages is growing rapidly. Analysts from Goldman Sachs believe the collagen casings market there will grow by 10 to 15 per cent, as sausage production becomes more industrialised, a major advantage for Devro (DVO). Despite fluctuating exchange rates and rising raw material costs, which forced the sausage casings producer to issue a profit warning in October, the company has huge scope for medium-term growth, and demand for new higher-margin products is growing fast. It is one of the two top players in its market and plans to expand capacity by 8 per cent over the next two years in Europe and Asia.

Global consumer goods group Unilever (ULVR) has also been focusing on emerging markets, which now account for close to 56 per cent of group sales, while reducing exposure to low-growth areas. This strategy is likely to deliver another year of good top-line growth. In fact, just this month the group announced the sale of its Skippy peanut butter business, closely following an exit from US frozen foods. Three years on from the arrival of chief executive Javed Ahmed, and Tate & Lyle's (TATE) strategic aim of increasing exposure to faster growing markets – and shift its sales mix from commodity to higher margin speciality ingredients – is also on track. It's shares are now up 65 per cent since we suggested buying them, but on a forecast PE ratio of 14 are starting to look too expensive, especially without any sign yet of the long-touted takeover.

Yet reliance on emerging markets isn't always a good bet. PZ Cussons (PZC) suffered due to civil and economic unrest in Nigeria last year, one of its main markets, which saw the group issue a profit warning in March and could have serious implications for future consumer spending. Having said that, the company's share price has risen 25 per cent since July and profits were up 10 per cent in a recent trading update, helped along by new ranges in Indonesia and signs of recovery at its previously lossmaking Australian operation.