Davy Research

Cranswick plc

An outlier that can continue to prosper
Foods
Cranswick plc

DAVY VIEW

That Cranswick has prospered through a decade of deflation and static volume growth in UK food manufacturing is testament to its operational excellence and smart capital allocation. It has successfully positioned its business to capture the value growth in premium pork and poultry products against a backdrop of static UK pork consumption.

Its commitment to investment across the value chain, from farm to fork, is unique in a peer context at a time when provenance and traceability are resonating with the UK consumer. We believe it is best positioned in a sector context to navigate Brexit headwinds; most peers are reliant on imported product. It also has the ability to maximise carcass value via its export business, which is highly margin accretive.

Cranswick’s ability to convert capex to earnings without diluting ROCE is impressive. We forecast 17.3% cumulative EPS growth (>10% organic EPS growth) in the next two years off a capital spend of £90m. Our base case valuation, using current forecasts, implies a valuation of £23.50 or c.6% return pre-dividend. However, we see scope for Cranswick to grow earnings by up to 25% (off the 2017F base) using its balance sheet; this would imply a share price of £28.50. We initiate coverage with an ‘Outperform’ rating.

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  • RATINGS AND PRICE CORRECT AT TIME OF ISSUE


  • Cranswick plc

    Closing Price: 2188p

  • RATING 09/11/16

  • PREVIOUS RATING N/A

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