Shares in pork-to-poultry supplier Cranswick (CWK) jumped 11.1% to £28.61 on Monday as the food producer cooked up an encouraging first quarter update.
African Swine Fever in China boosted quarterly exports as buyers sought supplies from elsewhere.
Also interesting is the Hull-headquartered company's acquisition of Mediterranean food products business Katsouris Brothers for up to £50.5m. It supplies everything from olives to feta cheese.
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Investors have been had a tough time of it lately as profit margin concerns emerged because the wider weak retail backdrop. But the mood is significantly better today.
Cranswick enjoyed a modest boost from rising UK pig prices which has helped drive growth despite particularly stiff comparative figures from this time last year.
Which puts context on total sales growth of 1.5% in the quarter to 30 June 2019, which is not as limp as it may look at first glance. Also encouraging is emerging export demand driven by the widespread outbreak of African Swine Fever in China.
COURTING & CAPTURING KATSOURIS
Investors also appear positive on the capture of North London-based Katsouris Brothers, acquired for an initial consideration of £43.5m with Cranswick on the hook for a further £7m payment, so long as Katsouris hits agreed performance targets over the 14 months to September 2020.
Katsouris’ heritage is in the Greek produce market and the business operates through the brand Cypressa. It also has a strong private label presence in the antipasti, Mediterranean and olive markets.
Supplying everything from Greek olives, olive oil, feta and halloumi cheeses to chickpeas (the base for humus), Katsouris also has a presence in nuts and grains and the acquisition helps Cranswick to diversify away from meats whilst strengthening ties with major retailers.
Shore Capital believes Cranswick ‘has been “courting” Katsouris for some time; and we are pleased and reassured that Managing Director Costas Constantinou and Commercial Director Louis Constantinou will be staying with the business’, one that generated adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) of £6m on £68m turnover for the year to June 2019.
TASTY UPGRADES ENSUE
The deal is expected to be ‘modestly earnings enhancing in the current financial year’ and Shore Capital has upgraded its year to March 2020 pre-tax profit forecast by £3m to £88m. The broker’s 2021 estimate is increased by £5% to £105m to reflect a full year’s contribution from the latest addition to the Cranswick fold.
Cranswick CEO Adam Couch is ‘delighted to announce the acquisition of Katsouris Brothers, a leading supplier of Continental and Mediterranean food products. This acquisition strengthens our existing continental products business and broadens our offering in a number of fast-growing, plant based, non-meat product categories.’
Shore Capital adds: ‘Cranswick is a high-quality pig processor in the UK, a leader in its field in terms of capability, scale and value added.
Those traits are being increasingly applied to the faster growing poultry market, where a highly quality, integrated value-added approach is under development supported by significant investment.
Whilst so, we are also pleased to see Cranswick develop further complementary and contiguous growth opportunities in the growing Mediterranean meats (so salami and hams) plus plant-based categories, the latter notably augmented by the Katsouris acquisition.’