The supplier of fresh pork, sausage, bacon, cooked meats, charcuterie, pastry products and sandwiches reported underlying turnover 13% up on the same period last year. Total sales for the six months were 15% higher, after including the contribution from Kingston Foods, acquired last year and modest sales from Wayland Farms, acquired earlier this year.
Despite the encouraging top line performance, the update revealed short term margin pressure from the rising pig price and higher start-up costs at the new pastry facility, said Investec analyst Nicola Mallard.
Pig prices have risen to an all-time high of 170p kg, while start-up costs in the pastry facility were higher than expected.
While Cranswick not now expect any reduction in pig prices until the turn of the year, it is continuing discussions with customers, it said.
‘Timing of recovery’
“The timing of recovery is hard to predict,” said Mallard. “So, the group is prudently indicating that it now expects full year earnings before interest and tax to be unchanged at £50M. We reduce our profit before tax forecast accordingly by 7% to £49.4M with earnings per share of 78.6p.”
Investec retained its ‘buy’ recommendation on Cranwick stock.
Sahill Shan, analyst with N+1 Singer said the trading update was “effectively a profit warning, driven by cautious margin commentary”.
Shan added: “There is no denying that the top-line performance is very strong, comfortably ahead of our estimate and by all accounts the momentum is strong going into the second half. The extent of the margin fall is a big surprise and despite the possibility of some recovery in the second half, on the back of positive pricing discussions, we feel there is a real possibility of a structural shift in Cranswick’s margin dynamic.”
While experience showed that the firm ultimately manages various pressures and delivers positive year-on-year performance, a degree of caution is merited, said Shan. “We put our forecasts and recommendation under review. The shares have had a strong run in the past 12 months but today’s setback means a de-rating towards a 11x price/earnings is a real possibility on downgraded numbers.”
Stock
N+1 Singer said it was reviewing its advice on the firm’s stock.
Cranswick said: “With experienced management at all levels of the group, a strong range of products, a well invested asset base and a robust financial position, the board remains confident in the continued long term success and development of the business.”
The business was well-placed to deliver further growth, given its focus on service, quality and innovation to deliver “exciting, competitively priced products” together with a growing export trade, a broadening product portfolio and an increasing demand for premium British pork products by the UK consumer.
Cranswick will release interim results on November 25.