Cranswick defies inflationary pressures

Pork and poultry supplier Cranswick (CWK) is facing stubborn cost inflation. The UK standard pig price reached a record high in 2023, fuelled by a “sharp increase” in feed following the outbreak of war in Ukraine. Labour shortages are also rife in the UK, with Cranswick taking on 400 skilled butchers from the Philippines to fill the gap. 

These pressures had a clear impact on the company’s figures. Revenue growth was strong in the period at 15.7 per cent, but profit growth was sluggish. Adjusted operating profit increased by 4.2 per cent to £147mn, while adjusted profit before tax edged up by just 2.3 per cent to £140.1mn. Total volume growth in the period was “only modest”. 

The fact that Cranswick managed to grow volumes and profits at all is impressive, however, given the tough market conditions. (Fellow meat producer Hilton Foods (HFG) has been using price hikes to offset a decline in UK volumes in 2023.) Like-for-like volumes remain well ahead of pre-pandemic levels, with gourmet and convenience products proving particularly popular. 

Despite the tumultuous backdrop, Cranswick has also kept investing in its asset base, spending £250mn over the past three years. This means it is more resilient than most. The group’s self-sufficiency in British pigs has risen from 30 to 50 per cent, for example, which should help ensure continuity of supply. This is more important than ever, given that many independent producers have chosen to cut back or cease production entirely because of cost pressures. 

Cranswick is also seeking out efficiency savings. After a “long and frustrating” search, for example, the group has finally automated the production of the 60mn pigs in blankets it supplies during the Christmas period. 

The group is certainly not out of the woods yet. Cost pressures are still intense, and the industry is closely monitoring the spread of African Swine Fever, which is affecting large parts of China and, to a lesser extent, Europe. Recent cases have been found in eastern Germany, Italy and Greece.

However, management said the group made a positive start to the current year; analysts at Peel Hunt are confident that its investment programme should deepen its market share; and dividend hikes are also still forthcoming after 33 years. We still think Cranswick presents an opportunity for investors, therefore – particularly given that its forward price/earnings ratio of 15.2 is well below its five-year average of 18.3. Buy. 

Last IC View: Buy, 3,010p, 4 Apr 2023