Return to pig rearing revives Cranswick margins

Shares in Cranswick revived close a record high as the pork group revealed a recovery in its margins, fostered by the group's expansion in pig production, which has protected it from elevated animal costs.

The group behind brands such as Simply Sausages and Woodall's ham said that its underlying revenues for the October-to-December period had grown 13%, compared with the same period a year before, boosted by continued switching by shoppers to pork from higher priced meats.

"Both the versatility and the low relative price of pork compared to other proteins were central to this positive trend," Cranswick said.

"The ongoing popularity of pork products continues to be a contributory factor in the increase in sales."

'Constructive price discussions'

Margins on these sales had improved too, showing "some recovery" in the latest quarter from those achieved in the previous six months, albeit remaining below year-ago levels

The improvement reflected in part by "constructive price discussions with customers", such as the major supermarkets, as Cranswick sought to pass on the higher costs implied by a buoyant domestic pig market.

UK pig prices hit a record price, for the domestic market, of 169p a kilogramme in late October, buoyed by strong demand from the home market, at a time when European Union output has been curtailed thanks to animal welfare laws which have prompted many producers to give up rather than pay the cost of compliance.

The market has remained relatively strong, in a period which typically sees a post-Christmas retreat, with values standing at 164.86p last week, up 5.9% year on year, and up 18.0% on the price at the end of January 2012, according to the Bpex bureau.

'Offset higher costs'

However, Cranswick also flagged the importance of its re-entry last year, after an eight-year gap, into pig production, which has protected it from the rise in pig prices.

Indeed, Cranswick said it had last month made a "further strategic investment" in pig output by buying two breeding operations, raising to 20-25% of group requirements the proportion of pigs it produces itself.

"This gives the group greater control over a robust and integrated supply chain, with a clear focus on premium British ingredients and, in addition, has offset some of the impact of higher input costs," said the company, which as of November had produced internally 15-20% of its pig needs.

Market reaction

The revival in margins pleased investors, with broker Panmure Gordon saying that the recovery was "slightly earlier than we had expected, and as such we raise our full year pre-tax profits forecast by 3% from £49.0m to £50.5m".

Cranswick had achieved "a solid performance in tough conditions", Panmure analyst Graham Jones said, lifting to 1200p, from 1140p, his rating on the group's shares, on which he kept a "hold" rating.

Numis analyst Charles Pick also "tweaked up" his forecast for Cranswick's full-year profits, and his target price for the shares to 1215p, despite cautioning that more difficult comparisons ahead meant that year-on-year growth appeared poised to slow.

Cranswick house broker Shore Capital that "with ongoing material sales out performance, the potential for further margin recovery, a strong balance sheet and cash flows as well as invested industry leading facilities, Cranswick represents a core consumer holding for any small-mid investor".

Shares in the group stood 2.1% higher at 1269p in morning deals in London, 5p from the record high reached last week.

Agricultural Commodities
Agricultural Markets
Agricultural Companies
Agricultural Events