US Edition Cranswick
825p +39
Questor says BUY
Yesterday's interim results from the group have shown that this trend has developed, boosted by continued investment in the group's facilities and a concentration on keeping down costs.
Cranswick, which was initially established in the early 1970s by farmers in East Yorkshire to produce animal feed, has state-of-the-art processing factories in the UK and Europe. Indeed, in the UK the group's fresh pork operation has the capacity to accommodate about 29pc of the initial processing of the UK pig herd.
As well as producing supermarket own-brand meats and high-end speciality products, the company is active in animal welfare and the group continues to increase the number of British outdoor-reared and bred pigs processed.
Sales were also helped by good barbecue weather for at least part of the summer – and were given a boost by the World Cup. In the six months to September 30, bacon sales rose 24pc, with volumes up 28pc, and sales of sausages rose 8pc in value and 13pc in volume terms. Sandwich sales rose 19pc, although there are expected to be some headwinds here after gains in the price of wheat and chicken.
"Discussions with customers to recover these increases through selling prices are ongoing," Cranswick said.
All of this meant that total revenues rose 8pc to £384.3m and pre-tax profits jumped 12pc to £23.8m.
The balance sheet is also strong – with net debt now at just £41.5m compared with £54.7m six months ago. Earnings cover interest payments at 31.6 times. Cranswick continues to invest in its business so debt reduction may not be as large in the second half.
There was also good news on the dividend, which was increased by 10pc to 8.8p a share. It will be paid on January 21 and the shares trade with this payment until November 24. The dividend cover is more than 2.5 times, which means the group has ample scope to invest in its business and continue to increase payouts.
The results are a validation of the company's strategy and its good management after share price falls into these numbers. The shares were as high as 907½p at the start of August.
Questor expects the consensus earnings forecast to increase by about a couple of percent after these numbers.
The second half of the year should be helped by relatively low pig prices. "The business is moving into new categories, which will lead to further growth opportunities," said Bernard Hoggarth, chief executive.
The shares are trading on a March 2011 earnings multiple of 11.4 times, falling to 10.6 in 2012. The prospective yield is 3.2pc, rising to 3.4pc next year, which is good for a company offering growth.
Cranswick was first recommended at 600p on January 25 last year and the shares are up 38pc compared with a market up 51pc.
Questor has had a hold stance on the shares for the last six months, but upgrades the shares to a buy following this excellent set of figures. Buy.