Poultry sales drive growth at Cranswick

To quote the uruk-hai Ugluk from The Two Towers film, it “looks like meat’s back on the menu”. Cranswick (CWK) announced that the labour and supply chain challenges facing the meat industry are being “well managed” at the poultry and pork processing group as it revealed progress across key metrics and a 36 per cent increase in poultry sales in its interim results.

Income-hungry investors should be happy. They can expect to have their snouts in a bigger Cranswick dividend trough for the thirty-second year in a row, with the group announcing an increase in the interim payout to 20p per share.

Poultry was the standout performer. Processing ability at Cranswick’s Eye facility was raised to 1.4m fowl per week, and retail demand helped the facility process an average of 1.3m birds per week – in the comparative period this was 1.1m.  Chief financial officer Mark Bottomley said that cooked poultry performance was particularly strong, helped by a recovery in the retail sandwich market after a fall in demand during periods of pandemic restrictions.

Fresh pork was the one area where revenues fell. This was not an issue of demand, but rather of a Covid-19 flare-up at the Norfolk site. This led to the suspension of the group’s Chinese export license, hitting sales. Despite no clarity on when exports will be able to resume, Bottomley said the situation is “not a concern”. He noted that Far East exports were still up – by 10.9 per cent - against the same period in 2019.

Capital expenditure of £41m in the period highlights the group’s growth plans. A £31m breaded poultry facility in Hull is expected to complete in fiscal year 2023, with £9m put in so far. A range of “efficiency and automation projects” have been invested in, including £5m on an automated pork leg deboning line at the Preston facility.

There are promising signs on sustainability and welfare issues. The group refinanced its debt facilities and entered into a “sustainability linked” £250m agreement. It has kept its ‘tier one’ global business benchmark on farm animal welfare (BBFAW) status for the fifth year in a row.

Consensus forecasts give adjusted EPS of 209p and 212p for the 2022 and 2023 fiscal years respectively. This is up from 199p for 2021. Investec view the group’s “current multiple as offering an attractive buying opportunity”. On the broker’s price to earnings ratio for 2022 of 18 times, we agree. Buy.

Last IC view: Buy, 3,726p, 24 Nov 2020