Cranswick, the pork products group, is in talks with supermarkets
over raising its prices and passing on higher pig costs, driven to a three-year
high by high feed prices and the impact of enhanced husbandry standards.
Cranwick shares lost nearly 6%.
The UK pig price has, contrary to many expectations, continued
to rise despite the pressure on farmers from higher feed bills, swollen by particularly
poor domestic wheat and potato harvests, at a time when values tend to suffer a
Furthermore, enhanced European Union pig accommodation
standards, while already in operation in the UK, were expected by many as
forcing herd liquidations on the Continent, giving a temporary lift to regional
'Trend has not been
But UK pig prices as of the end of September reached 154.75p
per kilogramme, up 1.29p in a week and by some 7% year on year, according to
industry group BPex.
"Generally, prices tend to fall from the summer before
stabilising again during the Christmas period," BPex said.
"However, this year the trend has not been followed as
tighter supplies on the Continent have resulted in higher pig prices, which
have begun to impact British prices."
Slaughter rates in the UK showed a small decline, down 1% year
on year, as higher pig values reduced the temptation among farmers to liquidate
herds in the face of higher costs, although sow numbers – an indication of
breeding hopes - have shown a decline.
'Discussions on price
Cranswick, whose brands include Simply Sausages and The
Black Farmer, said that it had offset some of the impact of rising pig prices
through efficiency savings.
However, it cautioned that, with further increases in UK pig
prices "anticipated", it had opened talks with its customers, which include supermarket
chains Asda, Sainsbury and Tesco, over raising its prices.
"This is an issue affecting the whole supply chain, and the
scale of the inflation and the need to ensure continuity of supply will
necessitate discussions on price increases with the group's customers," Cranswick
"These are underway."
Cranswick - reporting a rise in underlying turnover for the
April-to-September period, the first half of its financial year - said that it
was "confident in the continued long term development of the business" despite
the pressure on costs, a comment which found some echo in the City.
"On a medium-term view, Cranswick with its strong management
team, a track record for… robust cash generation which has supported over 30
year of unbroken dividend growth should represent a core holding in UK small
and mid-cap funds," Shore Capital analyst Darren Shirley said.
However, Mr Shirley added that "it is reasonable to assert
that there is much less visibility to our second-half forecasts than would
normally be the case at this juncture".
At Panmure Gordon, Damian McNeela said that "rising UK pork
prices are likely to exert pressure on [Cranswick's] margins though the second
half, and as such there are downside risks to our forecasts dependent on the
timing of the outcome of price negotiations" with retailers.
However, he added that "much of this uncertainty has already
been factored into the stockmarket valuation" of the group, which trades at 5.9
times 2013 earnings before interest, tax, depreciation and amortisation
(ebitda), compared with a sector average multiple of 6.2.
Mr McNeela retained a "hold" rating on Cranswick shares,
with a price target of 875p.
The shares closed down 5.9% at 745p in London.