Join our community of smart investors

Hilton Food: the meat of the matter

The group has been coping well during the coronavirus pandemic
May 14, 2020

March 2020 was the biggest month of grocery sales ever recorded in the UK – up by more than a fifth year on year to £10.8bn, according to research house Kantar. And while data for April showed more muted growth – at just 5.5 per cent – sales were still £524m higher than in April 2019, as consumers settled into life under lockdown.

IC TIP: Buy at 1190p
Tip style
Growth
Risk rating
Medium
Timescale
Long Term
Bull points

Strong financial track record
Diversification by geography and protein type
Resilient supply chain bolstered by good customer relationships
Shares making new highs

Bear points

Risk of supply-chain issues during crisis
Potential reduction in red-meat intake over time

Of course, we hope that restrictions on our movement will eventually ease; people will go back to work, children will go back to school and restaurants will reopen. But for now, such a surge in shopping activity has applied pressure to the entire food supply chain – from supermarkets all the way back to manufacturers.

It helps, therefore, that Hilton Food (HFG) – a leading international meat packer– has stepped up to the plate. The group, whose core product range includes roasting joints, steaks, chops and minces, proclaimed within April’s annual report that it had “so far coped well with the challenges” brought by the coronavirus pandemic. Hilton’s facilities remained fully operational, and it said it had established business continuity and flexible buying models and supply options – enabling it to accommodate increased demand for protein-based goods.

While such flexibility is beneficial to Hilton and its retail partners in the short term, it should also bolster the group’s relationships with high-profile customers such as Tesco (TSCO) and Australian company Woolworths in the long run. As broker Peel Hunt puts it, the closeness of those relationships “make[s] coping with crisis a shared endeavour”.

Hilton may well emerge from the pandemic in a stronger competitive position, with greater growth opportunities. The share price strength adds to our confidence in this view, with the shares recently hitting an all-time high. Hilton had delivered an encouraging financial performance before the coronavirus struck. Between 2015 and 2019,revenues achieved a compound annual growth rate (CAGR) of 13 per cent, while operating profits saw a CAGR of 16 per cent.

Central to the group’s progress has been its ability to extend contracts with existing customers and diversify its business. Both factors contributed to a 7.8 per cent rise in total volumes sold last year, to 372,000 tonnes. Hilton made significant progress within its animal protein specialism, increasing participation with Tesco UK to supply 100 per cent of thelatter’s packed red meat requirements. And Hilton also broadened its portfolio with a 50 per cent investment in vegetarian business Dalco in January 2019, with options to acquire the remainder in 2024. A month later, the group added slow-cooked products to its range via the acquisition of sous-vide company ‘SV Cuisine’. This cost £100m at completion, with a further deferred consideration of £3.3m. 

These transactions, which followed on from Hilton’s purchase of fish company Seachill in 2017 for £80.8m, reflect the group’s efforts to move with the tide of “evolving” consumer buying patterns. More people are now eating meat alternatives – a shift stemming partly from health, ethical and climate-related concerns.

Hilton is also diversifying geographically and last July opened its largest facility yet in Brisbane, Australia. What’s more, the group has recently reached an agreement with retailer Delhaize to pack all of its red meat, starting this September from a location in Belgium.

Such expansion is underpinned by a robust balance sheet. At the end of December, alongside borrowings of £197m, Hilton held cash of £110m and undrawn loan facilities of £116m. The group even opted to pay a final dividend.

Hilton Food (HFG)   
ORD PRICE:1,190pMARKET VALUE:£973m 
TOUCH:1,188-1,192p12-MONTH HIGH:1,224pLOW:711p
FORWARD DIVIDEND YIELD:2.3%FORWARD PE RATIO:21 
NET ASSET VALUE:228p*NET DEBT:141%** 
Year to 29 DecTurnover (£bn)Pre-tax profit (£m)***Earnings per share (p)***Dividend per share (p)
20171.3637.437.419.0
20181.6545.742.321.4
20191.8149.746.021.4
2020***2.3354.949.524.0
2021***2.7163.657.327.0
% change+16+16+16+13
Normal market size:2,000    
Beta:0.13    
*Includes intangibles of £70m, or 85.1p a share
**Includes lease liabilities of £185ms
***Panmure Gordon forecasts, adjusted PTP and EPS figures