Shares in fresh pork supplier Cranswick (CWK) crackled 17p higher to £11.04 this morning as analysts upgraded forecasts following better-than-expected annual profits and a confident outlook statement. Lower year-end debt levels and a 6% dividend hike also increased appetite for the cash-generative food producer.


As foreshadowed in last month's (4 Apr) fourth-quarter trading update Cranswick delivered excellent figures for the year to March. Amid subdued UK grocery market conditions and after the absorption of higher pig prices during the year, adjusted taxable profits still grew 8% to £49.3 million on sales up 7% to a record £875 million.


Stripping out the contribution from cooked meats outfit Kingston Foods, acquired in June 2012, underlying sales were still 5% ahead.


Hull-headquartered Cranswick enjoyed growth across product categories ranging from fresh pork and cooked meats to bacon, sausages and sandwiches last year. Profits progression was achieved in the face of record pig prices, driven higher by the pressure piled on livestock producers by high feed costs.


Encouragingly, the £527 million cap's positive price negotiations with supermarkets helped mitigate the effect of input cost inflation, in tandem with improving efficiencies internally.


Web news - Cranswick chart - May 2013


Pig meat consumption in the UK continues to grow, with pork remaining an attractively-priced-protein compared to both beef and lamb, while the company appears to be benefiting from January's horsemeat scandal.


Many consumers have switched from frozen products and ready meals to fresh meat joints, particularly those with British labels, playing into the hands of Cranswick, since most of the pigs it uses are reared here in the UK.


Since the year-end, Cranswick has acquired (29 Apr) key supplier East Anglian Pigs (EAP) for £10.7 million. Involved in breeding and rearing British pigs, EAP gives Cranswick greater control over its premium British pig meat resources at a time when supermarkets are aligning themselves with large domestic players to guarantee supply.


Cash-generative Cranswick reported net debt had been reduced from £21.7 million to a better-than-expected £20.1 million, despite investment in the asset base and the acquisition of Kingston Foods. As a reflection of management's confidence in prospects, the final dividend was lifted 6% to 20.6p to take annual total 5.3% higher to 30p.


Securing market share gains at home, Cranswick is also making progress internationally. It has secured approval for fresh pork exports to China and won authorisation to supply the Australian market. Export sales have increased by 9% in volume terms over the past twelve months and now speak for 5% of group revenues.


Following a strong year-to-date share price rise which leaves Cranswick trading at a premium to the sector, Panmure Gordon is sticking with its 'hold' recommendation, although the broker has upgraded its price target from £10.80 to £12.


'Cranswick retains its strong balance sheet and we expect it to make further progress following recent new business acquisitions and start-ups', says Panmure, increasing its March 2014 taxable profits forecast by £700,000 to £53 million and earnings from 82.6p to 83.7p a share.


Still rating the stock as a 'buy', Investec Securities' Nicola Mallard has upped her price target from £11.80 to £11.90. The analyst upgrades her March 2014 profits estimate by £350,000 to £52.9 million, taking estimated earnings up from 83.8p to 84.1p a share.


For 2015, Mallard upgrades her profit forecast from £54.5 million to £54.9 million and earnings from 87.2p to 87.9p.

Issue Date: 20 May 2013