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FTSE 350: Food producers still looking for a turnaround

This broad sector faced a plethora of challenges in 2019, and there are few indications of respite in the near term
January 30, 2020

The sector’s biggest company, Unilever (ULVR), ended last year on a sour note, warning it expected sales growth for 2019 to be below its previous guidance of “the lower half” of 3-5 per cent. This was a continuation of the trend for slowing growth seen at the half year and at the end of 2018, and rival Reckitt Benckiser (RB.) has itself warned of slower-than-expected growth. This is hardly surprising given the groups’ size – their market capitalisations are a hulking £115bn and £43bn, respectively – and is likely to continue through the coming year. Some of Unilever’s issues have been an economic slowdown in Southeast Asia, a slow recovery in North America and difficult trading in West Africa.

Fellow consumer products group PZ Cussons (PZC) – a comparative guppy at £872m – has had its own issues in its African business, leading to a profit warning in December last year. However, at the end of last year, well-known fund manager Nick Train of Lindsell Train (LTI) chose the group as the first British stock he has bought in nine years, which may lead to a reassessment of the group’s prospects.

On the food front, the sector’s two meat-focused groups – Cranswick (CWK) and Hilton Food (HFG) have been doing well, albeit for opposing reasons. Cranswick has benefited from increasing demand from China – a side effect of the Wild African Swine Fever outbreak in the region. The outbreak is still spreading and is likely to remain a factor in the group’s performance over the coming year – just as well, as the UK market remains highly competitive.

Hilton Food, on the other hand, is benefiting from a turn away from meat towards vegetarian-friendly products through its investment in Dalco in January last year. The group has been signing up new retail customers for the offering, and has underlined its “significant growth prospects” from rolling out vegetarian products, alongside a planned expansion in Australia, New Zealand and Central Europe, as well as a move into fish.

A big question facing Associated British Food (ABF) and Tate & Lyle (TATE) is whether the sugar market is going to get any sweeter. ABF struggled against oversupply and the EU’s sugar regime last year, but its latest trading update pointed to an increase in prices, along with cost reductions, as factors that will deliver a “material improvement” in sugar profit in the year. Tate & Lyle, meanwhile, has been working to improve efficiency in its sucralose business, as growing demand is tempered by increasing supply from Chinese manufacturers. This, combined with market challenges in its primary products division – read: sweeteners, industrial starches and commodities such as corn oil – means the group is expecting earnings to be flat for the full year

NAMEPrice (p)Market cap (£m)12-month (%)Fwd PEYield (%)Last IC View
Associated British Foods2,67021,06312.60%181.70%Hold, 2,361p, 05 Nov 2019
Bakkavor1398070.10%104.30%Hold, 142p, 01 Mar 2019
Cranswick3,4481,79618.50%221.60%Hold, 3,282p, 26 Nov 2019
Greencore2451,08628.80%132.50%Hold, 233p, 27 Nov 2019
Hilton Food Group1,05686310.90%242.10%Hold, 981p, 17 Oct 2019
PZ Cussons198829-6.00%164.20%Sell, 227p, 23 Jul 2019
Reckitt Benckiser6,06743,0604.30%192.90%Hold, 5,747p, 22 Oct 2019
Tate & Lyle7923,69113.80%153.70%Hold, 769p, 24 May 2019
Unilever4,387131,7678.10%-3.30%Hold, 4,939p, 26 Jul 2019