Cranswick is ‘best in class’ operator: City analyst
Cranswick reported underlying turnover up by 10% in the three months to June 30 2013, compared with the same period last year.
Total sales were up by 12%, after taking into account contributions from Kingston Foods – which was acquired on June 29 2012 – and modest third-party sales made by Wayland Farms. The business – formerly East Anglian Pigs – was acquired on April 29 2013.
Shore Capital analysts Clive Black and Darren Shirley noted that the group had benefited from capacity growth and process developments. In addition to opening its Malton site, Cranswick had a full quarter of trading following the commissioning of its new fresh pork retail packing facility in Kingston-upon-Hull in March 2013.
Also, further work has started on the extension of the Delico cooked meats factory in Milton Keynes. The plant’s advanced cooking and slicing technology will improve productivity and throughput, it said.
‘Highly cash generative’
“Cranswick remains a highly cash generative business with a strong balance sheet and, unlike many of its peers in the UK mid-cap consumer staples sphere, it is not encumbered by the burden of considerable pension responsibilities,” said Black and Shirley. “As such, Cranswick’s enterprise value is of high quality and meriting a premium rating to our minds.”
Net debt was £55M compared with £20.1M at the March 2013 year-end and was £17M above June 2012, reflecting seasonal working capital, investment costs and the £13M acquisition of Wayland.
Shore Capital concluded Cranswick was well-placed to cope with the challenges of the market and to seize “growing opportunities for medium-term growth”. It was already growing domestic share and boosting exports to China, the US and Australia, with export revenues up by 13% year-on-year in the first quarter.
It forecast a 2013/14 net debt:EBITDA (earnings before interest, tax, depreciation and amortisation) ratio of 0.3x.
As Shore Capital acts as broker to Cranswick, it issued no recommendation on the firm’s stock.
Panmure Gordon noted that Cranswick shares had risen by 38% and outperformed the UK market by 25% year-to-date. Its share price enjoyed a modest premium to the rest of the sector, with key competitors such as Vion and Danish Crown in introspective mood after recent ownership and management changes, said analyst Damian McNeela.
“We believe that this premium is deserved given its track record and that the business is in a strong position in the UK,” said McNeela. “Cranswick retains its strong balance sheet and we expect it to make further progress following recent new business acquisitions and start-ups.”
Panmure Gordon maintained its ‘hold’ recommendation on Cranswick stock.
The firm said its financial year had started in line with the board’s expectations. It added that pig prices increased during the first quarter and in July to a new record high. But the impact has been absorbed through efficiency improvements and by the “strong volumes” processed through the group’s facilities, it claimed.
