Cranswick grows despite pork pullback

In the past year, hundreds of healthy pigs have been culled on UK farms after an acute shortage of workers kept abattoirs from processing enough meat. Lawmakers have pointed the finger squarely at Brexit and the Covid-19 pandemic: both complex issues with an ongoing impact on the country’s economy. Against this backdrop of instability, meat producer Cranswick (CWK) has managed not just to survive, but also to grow its revenues to over £2bn for the first time. 

The company’s full-year results show that adjusted earnings per share were up by just over 3 per cent, while the adjusted operating margin held firm from the prior year at 7 per cent despite high input cost inflation and lower Far East export margins.

Cranswick’s poultry division was its standout performer, with revenue increasing 30.8 per cent following a successful investment drive. The company spent £6mn to improve the capacity of its farming operations and automate its poultry processing activities. It is now capable of processing 1.4mn birds per week. Sales of Cranswick’s cooked poultry products were also ahead of pre-pandemic levels thanks to a strong recovery in demand from the food service industry. In particular, the company said the food-to-go segment benefited from strong sales over the festive period and the easing of lockdown restrictions. 

Conditions at Cranswick’s fresh pork division (where revenue was down almost 8 per cent year on year) were somewhat more challenging. New lockdown restrictions in China impacted export volumes, as did an ongoing inability to ship products from the company’s Norfolk facility to China due to issues with its export licence. The average UK standard pig price was also 4.8 per cent lower than the previous year’s average, in part because the shortage of skilled butchers led to an oversupply in the UK market. 

Looking ahead, the spectre of African Swine Fever looms large over the whole of the UK’s pork industry. Although cases in Europe have largely been confined to Romania and Poland, Cranswick said it remains “acutely aware” of the impact that an outbreak of the highly-contagious virus could have on its business. 

The company exited the period with only £200,000 of cash in reserve, due largely to its investment activities – net cash flows were positive in the prior year. Cranswick acknowledges that it is operating under a challenging set of market conditions, most of which are outside the influence of management. Nevertheless, it has successfully taken action to mitigate inflationary pressures, even though there must be a limit in terms of cost pass-through. With the shares trading at a 24 per cent discount to the broker consensus target price, we reiterate our buy call, albeit with a greater degree of caution than last time around. Buy. 

Last IC View: Buy, 3,675p, 23 Nov 2021