Hilton Food makes meaty acquisitions

It is a time of strategic progress and more diversification for Hilton Food (HFG). More than three-quarters of volumes were concentrated outside of the UK in these results, as the food packing company made key acquisitions, penetrated new markets, and announced its biggest ever full-year dividend.

Total sales volume growth of 5 per cent may look rather puny against the prior year’s 26 per cent uplift, but investors must bear in mind that demand was significantly impacted in 2020 by lockdowns and elevated levels of eating at home. This is still good growth in the circumstances.

Australasia was the standout in the results, posting revenue growth of 71 per cent to £1.3bn and volume growth of 33 per cent on the back of a new facility in New Zealand as the segment’s adjusted operating profit rose by over £5mn to £22.4mn. European markets struggled, by comparison, with volumes down 2 per cent and operating profit flat at £61.8mn – not helped by a fire at the Belgian facility – but over two years volumes were still up by an average of over 3 per cent a year.

But it is the recent acquisitions, and the impact these have on the company’s outlook, that are most intriguing. Hilton has now entered the North American retail market for the first time after purchasing the smoked salmon producer Foppen last month, funded by a £75mn equity raise.

In the past six months, the company acquired the remaining 50 per cent of vegetarian and vegan proteins producer Dalco and entered the UK food service market via the purchase of the entire share capital of meat supplier Fairfax Meadow. Hilton’s operations have been diversified further and the company looks set to benefit from its entry into new proteins.   

Chairman Robert Watson said that “our short and medium-term growth prospects are underpinned” by these latest additions to the business.  

Management is bullish on the company’s ability to withstand inflationary and supply chain pressures. On the latter, supply chain management software business Foods Connected posted more growth in the year.

Peel Hunt analysts said that the company “has enhanced capability across categories and also its supply chain expertise, where we see Foods Connected and a focus on robotics as key differentiations”. The broker has the shares trading on 19 times forward earnings for the 2022 and 2023 financial years. This is more expensive than a competitor such as Cranswick (CWK) – trading on a consensus 17 times forward earnings – but still looks undemanding given Hilton's growth outlook. Buy.

Last IC View: Buy, 1,150p, 16 Sep 2021