“Management cites the versatility and relative price credentials of pork (relative to other proteins) as key drivers for growth, with UK pork consumption reported to be rising through Q3 and over the important Christmas period,” stated a Shore Capital analyst note issued by Darren Shirley.
“Indeed, recent market data suggest pork was the only protein to generate volume growth over the four week Christmas period. However, we believe Cranswick’s sustained track record of operational excellence and industry leading facilities is also leading to ongoing business wins.”
Investec analyst Nicola Mallard said: “The pork category remains buoyant; recent [market analyst] Kantar data shows it as the only meat protein in volume growth over the Christmas period.”
£30M of capital
Shirley expected the business to invest about £30M of capital in infrastructure in 2013–2014, which included pumping cash into expanding its Delico cooked facility. He forecast a similar amount of investment for the following financial year.
He also highlighted that the firm had reported “pleasing progress” at its recently opened pastry facility at Malton, North Yorkshire, boosted by the launch of new gourmet pies and a strong Christmas range.
“Still in the early stages of production, we believe management’s focus and priority was on customer service levels,” he said. “Moving forward management is now implementing a defined plan to deliver an improved margin and profit performance in pastry.”
Aside from pastry, the company had also reported broad-based growth across cooked meats, fresh pork and bacon in the three months to December 31, 2013, Shirley observed.
Favourable prices
Cranswick had increased the proportion of pigs it reared internally to 20–25%, with the acquisition of two breeding units in December, he said. This, in tandem with positive pig price negotiations with external suppliers, looked set to enable it to score favourable prices in the near future, he added.
“The clear focus of Cranswick’s pig rearing is ‘premium British’, and we believe the group now has now satisfied its premium pork requirement for its two leading retail customers.
“Therefore, we would be surprised if Cranswick was to increase its proportion of own pig production materially above current levels.”
Some industry commentators believe Cranswick’s recent withdrawal from the Deadweight Average Pig Price system could also free it up to negotiate beneficial deals on pigmeat.
Shirley bumped up full-year sales predictions to £986M, implying revenue growth of 10% in the second half of its financial year.
Cranswick claimed underlying sales growth of 13%, while total sales rose by 14% comparing Q3 with the same period last year. Pig rearing business Wayland Farms, acquired in April last year, contributed modestly to the figures, it said.