Will rising pig prices dent ‘class act’ Cranswick?
Pork giant Cranswick said in its fourth quarter trading statement yesterday that it expects full-year results for the year to March 31 2011 to show trading in line with expectations: with 2010/11 like-for-like sales up 4% (2009/10 turnover, £740m) and sales volumes up 6%.
Cranswick processes fresh pork, sausage, bacon, cooked meats, charcuterie and sandwiches for UK retailers, food service and food manufacturers.
Well-invested infrastructure
Shore Capital analysts Darren Shirley and Clive Black noted Cranswick’s talented management team, well-invested infrastructure, robust volume growth, strong balance sheet and small net pension deficit (£5.3m in March 2010).
The analysts said that Cranswick’s “enviable network of operating plants… provides the platform for long-term growth”: the firm commissioned its new abattoir at the fresh pork facility in Preston (near Hull) last autumn and extended its ‘added-value’ sausage facility (Lazenby’s) in Hull (weekly capacity 700 tonnes); it said the development of its Sherburn air-dried bacon facility is now “substantially complete”.
Nonetheless, Shirley and Black said they felt cautious about the UK consumer environment, following a weak first quarter of 2011, and downgraded 2011/12 pre-tax profit estimates for Cranswick accordingly by around 6% to £47m.
Challenging times ahead
“With living standards falling and the consumer and retail volumes under pressure,” said Shirley and Black, “we believe it is sensible to assume Cranwick will face challenges as it attempts to recoup the widely anticipated rise in pig input costs,” which are expected in the second half of 2011/12.
But with capital expenditure now scaled-back due to recently completed major investment projects, the analysts said they expected Cranswick to grow its cash flow in 2011/12 and reduce debt further to £33m.
Investec Securities analyst Nicola Mallard said Cranswick sounded a “few notes of caution” in the trading statement, given a more challenging fourth quarter and some small volume losses, but said she expected 2011/12 top-line growth of around 2-4%; Investec has trimmed pre-tax profit predictions for the year from £48.3 to £47m.
She added: “We are also assuming a cautious view on margins. Typically, margins tend not to improve when there is any degree of re-tender activity and whilst this is not a major factor, it could be compounded by the possibility of higher pig meat prices.
“Farmers have been losing money for several months now and we should be prepared to see some upward move in pig prices, perhaps in the latter half of the financial year.”
Cranswick will release its full-year 2010/11 trading results on May 16 2011.
