It is now focusing on the poultry market. The company completed the £17.7m purchase of cooked chicken specialist Benson Park in October in 2014 and branching out into these feathered friends is sensible.
Cranswick don’t rear the chickens themselves, what the facility does is smoke, cure and cook the meat for the rapidly growing premium fast food segment. Customers such as Pret a Manger use it in the Christmas special sandwich, and it also goes into Itsu hot noodles, and Wahaca’s Mexican style food.
The chicken business is more profitable that pork and it is already sending the company’s margins higher. The adjusted operating profit margin increased from 5.4pc to 6pc during the six months to the end of September. Cranswick said a £9m project to double output and reduce costs at the Benson Park facility is now complete, so there should be more to come in the second half.
Pork will never be a luxury meat, so the profit margins are fairly slim. That said, it is a staple source of protein for European markets; this drives steady demand, which in turn ensures predictable revenue and strong cash flow.
The growth opportunity is exporting to Asia where volumes increased 18pc, and Cranswick now makes up more than half of all pig meat exports to the Far East. It is also increasing its range of premium pork-based foods. Sandwiches and pastries such as pies and rolls offer higher margins than sausages.
The loss of a major sandwich customer resulted in a £4.6m write-down in the value of that business, and this in turn weighed on the reported pre-tax profits of £25.5m, from £24.6m.
The adjusted pre-tax profits increased 22pc to £31.5m, on revenue up 10pc to £529.1m, during the six months to the end of September.
Cash generation was strong and net debt was £4.8m at the end of September, down almost 80pc from £25m last year. This gave management the confidence to increase the interim dividend by 9pc to 11.6p and the shares offer a prospective dividend yield of 2.2pc.
We said the shares looked cheap earlier this year (Buy, £14.13, April 9) and they have risen £3.84, or 27pc, since then. The stock is now near record highs and trading on a forecast price-earnings (P/E) ratio of 17 times.
Cranswick has a 25-year track record of increasing the dividend. The move to more profitable areas of food production looks solid and the balance sheet is strong with £130m in available funding for further acquisitions. We are happy with these shares for the long term. Hold.