UK’s Cranswick stays cautious despite strong growth
Cranswick’s H1 update for the first six months to 30 September shows revenue growth of 13%. The majority of this was volume-driven, with total sales up 15%, and fresh pork and bacon turning in the strongest performance.
City analyst Investec said the results reflected “the continued consumer preference for pork but also new contract wins by Cranswick”. Analysts at Shore Capital agreed, adding that, in the sausage category, “trading in one week in July was the strongest ever for a non-Christmas week”.
However, while revenue growth has been strong, Cranwick said “significant raw material price inflation”, combined with “higher-than-anticipated start-up costs” related to its pastry business, kept operating profit flat year-on-year, at around £22.5m.
It added that with UK pig prices likely to “remain at historical highs at least through to the end of the calendar year”, full-year profits are unlikely to exceed 2012/13.
Shore Capital analysts Darren Shirley and Clive Black said Cranswick was right to keep profit expectations down.
“With the driver for the record high UK pig price being robust demand for UK sourced pork, and with the growth in the UK pig herd yet to reflect such rising demand, we believe it is sensible for management to assume no weakening of the UK pig price in the current calendar year, noting that historically October–December experiences further upward pressure on pig prices as demand rises into the important Christmas period,” they said.
“Our analysis, using the same volume assumptions outlined above, and applying the current UK DAPP of 170.71p/ kg (H2 2012/13 average 158.6p) suggests step-up in raw material costs of c£7.5m, with risk on the upside if the price increases in the run-up to Christmas. Such figures, we believe, demonstrate why management, while actively trying to mitigate such costs through efficiencies, is also engaged in ongoing discussions with customers, the outcome of which will clearly be important to the full-year profit performance.”
They added that Cranswick’s decision to return to pig rearing, with the acquisition of Wayland Farms in April and two further pig breeding units in Q2, was sensible, given the increase in demand for UK pork.
Longer-term, they said, with pork increasing in popularity and remaining competitive on price comapred to other meats, the prospects for Cranswick remained “very bright”.
