Cranswick reports tasty first half and strong demand

Food producer Cranswick (CWK) now expects full-year adjusted profits to come in at the upper end of market consensus (the company-compiled range is £153mn-£161mn), after it delivered a robust interim performance and flagged continuing strong demand ahead of Christmas trading.

Revenue at the core UK business was up 16.1 per cent on last year in the half, with volumes rising across divisions. Consumers are tucking into the company's product range despite price rises, with revenue boosted by increases put through to recover inflation and higher pig prices (the UK standard pig price rose from 214p per kg at the start of the year to 223p per kg at the end of September). 

The fresh pork, convenience and gourmet products divisions each posted chunky double-digit revenue growth. Poultry delivered a still respectable 7 per cent uplift, although management noted the Hull production site continues to operate below capacity. Meanwhile, volumes are expected to increase in the second half at the – currently – tiny pet food division. 

The top line performance and the mitigation of slowing cost inflation helped adjusted operating profits rise by a quarter to £85.5mn, with the margin up 69 basis points to 6.8 per cent. 

There are significant headwinds to navigate in the world of pork and poultry, including African swine fever, avian influenza and export problems with China. In this context, supply chain security and resilience is crucial. The company continues to make progress on this front, with the £31.7mn acquisition of indoor farming business Elsham Linc and the purchase of a second pig herd in North Yorkshire in the period. This takes self-sufficiency in UK pigs north of 50 per cent. 

Chief financial officer Mark Bottomley told Investors’ Chronicle that the Elsham acquisition is “a very important part of the farming jigsaw” for the business. Cranswick has moved from a position of not farming at all a decade ago to having significant pig and poultry operations, he added.

Return on capital employed, a key figure behind Cranswick's investment strategy, rose from 15.9 per cent to 16.4 per cent year on year. Cash generation also impressed, up from £59.3mn to £103mn. 

Shore Capital analysts argued that the company “is well set to drive growth to become a materially bigger and more profitable business over the forthcoming five-year period”.

We are similarly bullish. And the valuation, in our view, remains undemanding with the shares changing hands at 16 times forward consensus earnings. Post-period pork and poultry demand has been "resilient", according to management, meaning the short-term outlook looks tasty too. Buy.

Last IC view: Buy, 3,264p, 23 May 2023