It really is a crazy time. I see the management of Intu Properties (INTU) has admitted the company is close to administration as a standstill agreement remains illusive. Logically (not!), the shares are little changed as I write. You know my view on this one: a zombie at best, as noted earlier in the month. But the dog known as Intu is not what I really want to write about today. I believe I am correct in saying that nobody here - not even Malcolm - has written about Cranswick (CWK)...
We have all been foolish as the company's shares over the last five years have risen from around 1500p to around 37 quid today. So what exactly does it do? Well if you go onto the company's website it notes that the company 'was formed in the early 1970s by farmers in East Yorkshire to produce animal feed and has since evolved into a business which produces a range of high quality, predominantly fresh food, including fresh pork, poultry, convenience and gourmet products'. Yes, sausages and much more! Full year numbers to the end of March are inevitably in two parts… the formal results appear damn impressive with both revenue and operating profit continuing their double-digit annualised progress, helped by trends such as convenience, premiumisation ('slow cooked') and even a return to growth for bacon. And the 8% dividend increase was the thirtieth consecutive increase in a row. Dividend munchers ahoy!
It was not all perfect however as I note the twelve month numbers did see both operating margin and return on capital edge down, thanks predominately to our old pal the IFRS 16 adjustment plus a little bit of higher depreciation and (you guessed it) a tad of Covid-19 impact. But all of this is far from a disaster. Specifically on the coronavirus, the company notes that it had 'no recourse to government job retention schemes' which is a good thing to see. I guess it always helps when you generate numbers with the solidity of some of those quoted above and have a net debt level - even after the IFRS 16 adjustment - of less than x1 ebitda. The company is also fortunate that over 70% of sales are to the retail channel i.e. you and me spending in the supermarkets where its pre-pack options have been performing well over recent months, hence the lack of panic about Covid-19. Additionally it is helpful for the group that foodservice (pubs, restaurants and other areas that are currently closed) are a mere 5% of sales. Exports are more than twice this (and recently have been helped by growth in the Far East especially due to swine flu fears over there) and this is why in the announcement there seems to be as much worry about Brexit and general trade angst than Covid-19 uncertainty per se.
You can certainly see the benefit of being a vertically integrated business in a more necessity-style business. And for the right-on crowd there is even chat about sustainability from 'farm-to-fork'. Today would you pay a tad over twenty times earnings for such a profile? The answer is probably not, especially with the shares striking out towards another all-time high and only offering a 1.5% dividend yield (which is covered by free cash flow generation but not massively so due to ongoing capex). Today I would suggest focusing on its product rather than the shares but medium-term Cranswick has a repeatable strategy, so you know what to do on a bit of generalised or specific share price angst. Future FTSE-100 constituent? Not impossible.
Filed under: Cranswick, Avacta, i3 Energy, Julie Meyer, Escape Hunt, gold, Chris Bailey
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