If you believe some parts of the media, we are all becoming health-obsessed vegetarians and vegans, people who are shunning red meat staples such as beef, lamb and pork in increasing numbers.

Yet latest results from consumer foods supplier Hilton Food (HFG) suggest a different story, one that implies our collective appetite for protein-packed meats remains voracious.

TASTY PROGRESS

Today’s third quarter update is encouraging, with Hilton Food trading in line with expectations since 16 July.

This was a figure-free update but for context, Shore Capital analyst Darren Shirley is sticking with his full year pre-tax profit forecast of £43.8m and earnings of 39.6p.

That the share price has barely budged today (dipping a modest 4p to 918p) suggests that investors are happy enough with progress to date. Considering that the stock has more than doubled over the past three years, you can see why.

Cassandra's might point out subdued sales in Sweden and Denmark, plus tough market conditions in Holland, where the company is focusing on new product development to support customer Albert Heijn.

Yet in its core UK market turnover has been boosted by the £81m, 2017 acquisition of fish processor Seachill, which has won new business to supply shellfish to Tesco as well as to supply coated fish to Waitrose from March 2019. Hilton Food also highlights ‘a sustained improvement in performance’ in Central Europe and progress in Australia, where volumes are growing at a double-digit clip.

Hilton Food is certainly moving with the times too, evolving to adapt to the consumer’s quest for healthier options. Seachill provided an entry into the growing fish protein category, and Hilton Food recently agreed to buy a 50% stake in Dutch vegetarian products play Dalco with the option to feast on the remaining tranche of shares in 2024; red meat may be the core business, but the canny Watson doesn’t want to miss out on the fast-growing vegetarian market opportunity.

WHY HILTON IS PACKED WITH POTENTIAL

Arguably among the stockmarket’s lesser-known lights, Hilton Food is highly resilient, cash generative and growing. Executive chairman Robert Watson, OBE (pictured below), floated the business on the Main Market back in 2007 at 150p. At 918p today, Hilton Food is valued at a meaty £747.3m and sits within the lofty ranks of the FTSE 250.

Hilton Food had sales of £1.4bn in 2017 and supplies retail heavyweights ranging from Tesco (TSCO), Ahold and Sonae in Europe to Woolworths in Australia from state-of-the-art plants using automation and advanced robotics.

Growing its volumes with supermarkets around the world, Hilton Food has opportunities to export its proven, cash generative business model to additional territories with existing and new retail customers.

Supplier consolidation in the industry favours scale operators such as Hilton Food, able to produce private label packed meats cost effectively while meeting high traceability standards.

 

PROVIDING PORTFOLIO NOURISHMENT

Watson insists the financial constitution of his charge ‘remains strong’ and continues to ‘explore opportunities to invest in and to grow the business in both domestic and overseas markets.’

Shore Capital’s Shirley teases that ‘with new business at Tesco and Waitrose confirmed, the Queensland facility proceeding ahead of plan and the Dalco acquisition to be incorporated post completion, we see modest upward pressure on forecasts for full year 2019 and beyond.’

He continues: ‘We remain positive on Hilton Food’s shares, with the investment case underpinned by a broad array of strategic growth opportunities cultivated by a high-quality management team over the past 24 months (Seachill, Australia, pizza, fresh prepared meals, New Zealand, Portugal and Dalco).

‘Sustained cash flows and a strong balance sheet and the recent refinancing (committed facility of circa £204m; uncommitted accordion agreement in place for £154m) also provide considerable optionality.'

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Issue Date: 01 Nov 2018