Hilton packages up revenue growth and diversifies

Hilton Food Group (HFG) outperformed expectations on revenue and earnings, while shareholders were cheered by a 17 per cent dividend hike and a 24 per cent increase in adjusted operating profits to £39m. The market responded positively, sending the share price up by 5 per cent. Revenues were driven by the group’s Australian business. This posted revenues of £635m, a 178 per cent increase on the 2020 half-year, as Hilton took ownership of several meat-packing plants that were previously part of a joint venture with Australian retail giant Woolworths. This is the first period in which revenues from these plants have been recognised. However, increased administrative expenses dragged down group profits, while net earnings were constricted by an impairment of Belgian assets destroyed by fire.

The acquisition on 7 September of the remaining 50 per cent of the Dalco Food BV joint venture, a Netherlands-based business that specialises in vegan and vegetarian produce, allows the group to further diversify revenue streams. With Hilton enjoying increased demand due to home cooking during the pandemic, this sort of venture is needed in the face of concerns around customer habits in the post-pandemic environment.

Net operating cash flow was down by a fifth to £28.3m, while net debt (ex-lease liabilities) as a proportion of shareholders' funds increased by 2 percentage points to 62 per cent. 

Broker Panmure Gordon raised its full-year revenue forecasts by £200m to £3.2bn, and the broker forecasts full-year EPS of 58.9p, up from last year’s 55.4p.

A forward rating of 20 times forecast earnings isn't overly expensive for a steady performer such as Hilton Foods, particularly as we believe that the group will prioritise margin expansion through FY2022. Buy.

Last IC view: Buy, 1,162p, 07 Apr 2021