Cranswick profits as households embrace home cooking

UK consumers have been countering the ill-effects of the pandemic by increasing their intake of saturated fats. That is the main takeaway from another strong showing by Cranswick (CWK) at the half-year mark. The food group, which runs farming operations and supplies pork and chicken to UK grocery retailers, recorded a 17 per cent hike in like-for-like revenues, together with a 31 per cent increase in adjusted operating profit, driven by a 50 basis point improvement in the underlying margin.

Although the group benefited from “exceptionally robust demand across all categories”, the humble British banger was at the centre of the sales surge. The group cited a strong barbeque season “particularly in the early summer during lockdown”, while cooked breakfasts have come back into fashion, a consequence of increased home-working. Management notes that although food service revenue was hit hard by the Covid-19 lockdown, it represents “only a small proportion of total bacon revenue”.

Capital expenditure, at £35m, was down on the same period in 2019, although work is progressing well on a new £20m cooked bacon facility in Hull. Finances remain in good order, with net debt (ex-lease liabilities) down by almost a fifth to £54.6m, coupled with £200m in bank facilities providing over £145m of headroom.

Cranswick did not get off scot-free, incurring £8.2m in pandemic-related costs, while work at several factories were disrupted by outbreaks of the virus, including a 14-day shutdown of a facility in Ballymena, Northern Ireland. Management will be looking closely at how the Brexit negotiations pan out, but the Hull expansion should help to underpin earnings growth, while analysts at Shore Capital see free cash flow yield rising from 3.4 per cent in March 2021 to 4.9 per cent in FY2022. Buy.

Last IC View: Buy, 4,010p, 17 Aug 2020