Back in late January, pork producer Cranswick (CWK) reported robust third-quarter growth - like-for-like sales rose 7 per cent on the year, or by 8 per cent after including Kingston Foods, which was acquired in June. Top-selling categories included bacon, sausages and cooked meats, where sales were underpinned by volume growth, rather than price increases
The extension of the group's Sutton Fields cooked meats facility in Hull was completed ahead of the Christmas trading period, providing increased capacity to meet demand. Development of the new pastry facility in Malton, North Yorkshire, is also on schedule with first commercial production expected in the late spring. Cranswick's gourmet bacon facility in Leeds saw record volumes, too, following a substantial investment to increase capacity and efficiency. What's more, the group's two fresh pork facilities in Hull and Norfolk were granted export licences to China, where demand for pork is rising. Cranswick is also in the final stages of gaining an export licence to Australia, which should open up a lucrative new market.
However, rising input costs were a factor in the period, with UK pig prices hitting record levels in December 2012. That hit profit margins and helped increase borrowing - net debt rose £16m in the quarter to £48m.
N+1 Singer says...
Buy. Cranswick has identified a strategy that should allow it to augment its already leading market position. Recent competitive woes and the fallout from the meat contamination debacle should work in the group's favour and are positive themes going into the new financial year. Although, given the nature of the industry, a degree of caution is merited. Still, we expect growing evidence of an improving investment case to support a further tick-up in the rating, despite a strong price run of late and - with our price target at 1,061p - we maintain our buy stance. Expect pre-tax profit of £48.4m for end-March 2013, giving EPS of 76.9p (from £45m and 71.4p in 2012).
Numis Securities says...
Hold. Following excellent third-quarter figures, we upgraded our profit forecasts for end-March 2013 by 2.6 per cent, and by a more substantial 6.9 per cent for 2014 - expect EPS of 74.9p for 2013 and 87.4p in 2014. We also upped our price target to 1,012p. But, while recent newsflow has been very positive for Cranswick, there's also an awareness of how volatile this business can be. Accordingly, we reckon that the market will be reluctant to re-rate the shares much beyond the level of our price target - despite such inherent merits as a good long-term record, well-invested assets and a focus on pork products, which enjoy pricing merits compared with beef and lamb.
