In a subdued UK grocery market – characterised by what the analyst described as “low single digit growth and flat to negative volumes” – Cranswick posted underlying sales up by 13% in the fourth quarter.
Growth was driven by a combination of Cranswick’s “emphasis on new product development, robust in-store category performances across the broadening product portfolio and also market share gains within the categories”, said Shore Capital’s Daren Shirley and Clive Black.
Two significant business wins
They highlighted two significant business wins in the fresh pork category, which they predicted would underpin revenue growth during 2013/14.
Damian McNeela, analyst with Panmure Gordon, said “The performance in the fourth quarter [Q4] was helped by the start of new fresh pork contracts with Asda and Marks & Spencer (M&S), but we understand that most other divisions also reported good volume growth in Q4.”
Total sales for the year were 7% higher after taking into account the contribution from Kingston Foods, which was acquired on June 29 2012.
Shore Capital highlighted strong growth in export sales. Sales in the second half particularly benefited from the group’s two fresh pork facilities being awarded export licences for China. “Elsewhere, we believe the granting of an export license for Australia is imminent, which we expect to benefit sales of higher-welfare, value-added products through 2013/14 and beyond.”
Shirley and Black expected pig prices to rise towards the traditional peak in May/June, predicting a high of 165p/kg. But, with the impact on the EU pig herd from the EU wide sow stall ban still unclear, it was advisable to take a cautious view of Cranswick’s earnings before interest and tax margin in 2013/14.
‘Gyrations in the UK pig price’
McNeela said margins were likely to be broadly in line with last year, which he regarded as a good performance given “the recent gyrations in the UK pig price”.
Panmure Gordon forecast operating profit margins 5.64% this year, compared with 5.7% for last year. “This is testament to the company’s ability to negotiate pricing with customers in the face of sharply rising pig prices last year,” said McNeela.
He maintained the current forecasts for adjusted profit before tax of £48M and adjusted earnings per share of 78.6p in the 2013 financial year. “Despite the prospect of rising pig prices we expect Cranswick to be able to manage the situation. It should also benefit from the additional fresh pork volumes from Asda and M&S and we are increasing our adjusted profit before tax forecasts by £1M to £51M in FY 2014.” That equates to an earnings per share of 80.6p, compared with 79.2p previously.
Panmure Gordon maintained its ‘hold’ recommendation on Cranswick’s stock but lifted its target price from 1,000p to 1,050p.
Cranswick said it had invested £30M in its asset base during the year. Investment included the commissioning of a new fresh pork retail packing facility in Hull at the beginning of March and the delopment of the new pastry facility in Malton, North Yorkshire.
It said in a statement: “The group is in a sound financial position, with committed, unsecured facilities of £100M, which provide generous headroom going forward.”
Last month Cranswick confirmed that its new venture with premium pastry product manufacturer Yorkshire Baker – to be called the Cranswick Gourmet Pastry Company – would create 130 jobs initially.
Meanwhile, to help food businesses protect themselves against the consequences of another horsemeat scandal, the Food Manufacture Group is staging a free, one-hour webinar, to take place at 11am on Thursday May 16. More details about this online event – organised in association with business law firm DWF – are available here. To reserve your place, email Michael.stones@wrbm.com.
Cranswick results – at a glance
- New fresh pork volumes help drive Q4 growth.
- Underlying sales grew by 13% in Q4.
- Underlying sales growth for FY 2013E was 5%.
- Reported sales growth of 7% in financial year 2013.