Specialist meat-packing play Hilton Food (HFG) fattens up 3.8% to 515p on forecast-busting finals that reveal robust cash generation. CEO Robert Watson, OBE, is confident in the growth prospects of Hilton, whose ungeared balance sheet supports further expansion of a resilient and internationally-transferable business model.

Huntingdon-headquartered Hilton offers investors a play on the continuing trend towards supermarkets using large-scale, centralised meat packing factories. It runs major and extensively automated and robotised meat processing and packing facilities for major retailers, among them Tesco (TSCO), Coop Danmark and Ahold (AHLN:AS). Raw material meat is sourced in close co-operation with retail partners, then processed, packed and delivered to the grocers' distribution centres or stores.

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Despite tough market conditions in some countries, finals for the 53 weeks ended 3 January reveal impressive 11% growth in taxable profits to £28 million, 4% ahead of the £26.9 million pencilled in by Panmure Gordon, not to mention a meaty 9.8% dividend hike to 14.6p.

2015's strategic highlights included the expansion of Hilton's Australian joint venture with Woolworths (WOW:AX) and the completion of a major UK capacity expansion project at Huntingdon to support growth with Dave Lewis-led Tesco, operational efficiencies from the latter already coming through rapidly.

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Investors needn't be alarmed by a 0.4% softening in revenue to £1.095 billion, as this reflected the depreciation of currencies including the Euro, Danish Krone, Polish Zloty and Aussie Dollar against Sterling. More significantly, volume increased 5.5% to 244,140 tonnes as Hilton grew with Tesco in the UK and Ireland and in Holland with Albert Heijn.

Prodigious cash generation, as investment spend returned to lower levels, led to a much better-than-expected closing net cash position of £12.7 million, a year-on-year swing from £7.7 million net debt.

SHARES has a positive stance on Hilton, despite its skinny operating margins, which edged up from 2.4% to 2.6% last year. Its competitive advantages are growing thanks to a focus on efficient manufacturing facilities of scale, while the company is also a loyal partner with proven pedigree in delivering quality products with the highest levels of food safety, traceability and integrity. Long-standing customer ties, high market share in each of the territories it serves and scope for future expansion mean Hilton is well placed to grow its bottom line over the medium-term.

Web - HFG - March 16

In agreement is Panmure's Peter Smedley, who reiterates his 'buy' recommendation and 625p price target this morning. For 2016, he nudges up his 2016 taxable profits estimate from £30.7 million to £30.8 million for earnings of 31.2p and an estimated hike in the dividend to 15.6p, which means there's a tasty 3% yield on offer.

Issue Date: 31 Mar 2016