City: Cranswick well-positioned to diversify
Speaking as the pork giant unveiled a 5% rise in underlying like-for-like sales in the three months to December 31, 2010 with a 10% rise in volumes, Shore Capital head of equity research Dr Clive Black said its strong balance sheet, excellent cash generation and manageable pension position meant Cranswick was in a good position to fund moves into new areas.
Cranswick, which only has a modest pension deficit (£5.5m as of September 2010) compared with many publicly-listed food manufacturers, had "well-invested facilities that permit organic growth in core categories of fresh pork, premium bacon and high-end sausages for several years to come," said Black.
Strong cash generation
“With investment largely complete forthcoming cash generation should be robust, leading to further net debt reduction with respect to an already strong balance sheet.
“Additionally, we believe Cranswick is also well-positioned in all respects to consider complementary diversification down the line.”
Cranswick (which did not mention input costs in its trading update but did say operating margins were in line with expectations), was seeing “reasonably favourable conditions in the UK pig market when many other food manufacturers are experiencing greater upward cost pressures”, added Black.
“We sense that the affordability of fresh pork in particular is favourable at present versus other meat lines such as beef and lamb.”
Headroom for growth
The firm, which has recently completed work on a new abattoir at its primary pork processing site in Hull and an extension to its Lazenby's sausage facility that will boost capacity by 50%, is also expanding its air-dried bacon facility at Sherburn-in-Elmet, near Leeds.
Investec Securities analyst Nicola Mallard said Cranswick was now “well-placed in all of its businesses, with headroom to facilitate future growth”, adding: “We feel Cranswick will continue to prove to be a safe haven in potentially difficult consumer markets.”
