Cranswick has posted yet another year of strong growth. The business is witnessing growth in all its categories and strong innovation is keeping its offering relevant and desirable. Management has guided towards significant capex investment in 2017 to continue increasing capacity to match its growth prospects.
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Cranswick |
Making gains in a competitive space
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Consumer |
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26 May 2017 |
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Cranswick has posted yet another year of strong growth. The business is witnessing growth in all its categories and strong innovation is keeping its offering relevant and desirable. Management has guided towards significant capex investment in 2017 to continue increasing capacity to match its growth prospects.
Premium and convenience-oriented positioning in the sweet spot
The current consumer health trend of increased protein consumption has boosted the market, particularly in poultry. Cranswick’s product offering is skewed towards the premium end of the market, and this is witnessing disproportionate growth. The company has seized on the opportunity and launched new ranges in convenient formats that tap into these trends, for example premium sausages are growing at the expense of standard lines, and pre-cooked and pre-seasoned poultry is seeing very strong growth. Innovation remains a key part of Cranswick’s growth engine and the company has won several new contracts across various channels.
Space remains competitive
The UK retail environment remains tough, with the discounters and the big four supermarkets fighting for market share. While this is not an easy environment in which to operate, management is well-versed in dealing with a tough set of customers. Equally, the competitive landscape remains challenging, with strong competition from both domestic and international players. Indeed, group operating margin was down 30bp during FY17 to 6.1%. Cranswick is committed to innovation and also strong customer relationships, hence it has earmarked £70m of capex investment for FY18 to upgrade and expand several sites such that it can continue to operate smoothly in periods of peak demand.
Valuation: Premium to competition
Trading at consensus FY18e P/E of 22.7x, Cranswick continues to be valued at a premium to the meat processing and food manufacturing peer group, which appears to be supported by its near-term growth prospects. Bolt-on acquisitions remain a possibility and, in the right circumstances, could prove to be a catalyst for the shares. Volatility is likely to remain a feature due to the agricultural nature of its raw materials, and we expect inflation to continue to come through in FY18. Given the tough consumer backdrop, management expects to offset some raw material inflation with cost savings and self-help measures throughout the supply chain, as it believes its customers will be unwilling to raise prices significantly.
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Consensus estimates
Source: Bloomberg |
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Research: Investment Companies
Worldwide Healthcare Trust (WWH) aims to generate capital growth from a global portfolio of healthcare stocks. While around two-thirds of the portfolio is invested in the US, there is a meaningful c 15% exposure to emerging markets and WWH can invest across all subsectors of the healthcare industry. Since launch, the trust has been managed by Sam Isaly, who is co-founder of OrbiMed Capital, the largest dedicated healthcare investment manager in the world. WWH has a strong investment track record – it has outperformed its benchmarks over one, three, five and 10 years. WWH’s discount has been on a narrowing trend since mid-2016; its shares are now in line with cum-income NAV.