Reporting on Cranswick’s first quarter results for the three months to June 30, Darren Shirley, analyst at Shore Capital, forecast capital investment for the company of £40m in 2012-2013.
The figure represents an increase of £15m on Shore Capital’s previous predictions and includes planned investment of about £12m at its Malton plant in north Yorkshire. This latter move is bound up with Cranswick’s entry into the premium pasty market.
“The new unit should provide a further avenue for Cranswick to effectively explore, just as it has in the British premium bacon and sausage markets,” said Shirley, in an investor’s note.
Additional opportunities
Cranswick’s acquisition of premium cooked and roasted meat products producer Kingston Foods on June 29 would lead to additional opportunities, he said. “Cranswick is a very well invested business to our minds and, following a major phase of activity, we believe that it has the capacity to meet anticipated market developments in its core categories for the next two to three years.”
In addition, Shirley said Cranswick could well benefit from Vion’s threatened closure of its pig slaughtering facility unit in Scotland if it went ahead. “Whilst undoubtedly regrettable for all concerned, any further rationalisation could bolster the commercial relevance of Cranswick’s operations to those UK retailers that increasingly aspire to supply the market with domestically sourced product.”
Cranswick’s export activities also showed promise, he said, in particular export sales of ribs to the US from its USDA-accredited Preston plant in east Yorkshire and direct trade of products to China.
Pig prices
Nicola Mallard, analyst at Investec, said Cranswick was in a good position to resist further upward pressure on pig prices in the year to come.
“Pig prices have increased in Q1, but the inflation is far more modest than we saw this time last year and has been absorbed through increased volumes and operating efficiencies,” she said. “Hence we anticipate margins in 1H13 (the first half of 2013) should exceed 1H12 (the first half of 2012). Coupled with strong revenue growth, this year’s 1H should show good profit progress.”
Rising feed prices and changes to EU breeding regulations, leading to tightening of supply, could put more pressure on pig prices, said Mallard. But this could be mitigated by retailers moving in advance to ensure they had adequate supplies.
Bucking market trends
Shirley praised Cranswick for bucking food market trends by reporting strong sales growth in its first quarter. “In a UK food market continuing to experience significant volume declines, Cranswick continues to deliver a more than commendable performance.”
Cranswick reported sales up 7.4% to £209m (€265.6m) in the three months to June 30 2012. “During the period, all categories delivered robust growth and there were strong gains in sausage, bacon and continental products,” the company said in a statement.
“There were further modest increases in pig prices during the period, albeit they remain below the peak of last summer. The impact has been absorbed through increased volumes and continued operating efficiencies.”
Cranswick’s second quarter marks the start of the tenure of its new chief executive Adam Couch, who succeeds Bernard Hoggarth, who will remain on the company’s board as commercial director.