Cranswick (CWK) £40

Profit to date: 11%

In November 2023, we said investors hungry for positive earnings momentum and an unbroken 33 years of dividend growth should take a closer look at pork and poultry products supplier Cranswick (CWK).

We saw scope for further earnings forecast upgrades based on strong UK food trading highlighted by leading grocer Tesco (TSCO).

There is also underappreciated upside from Cranswick’s recent entry into the pet food business where it can leverage its strong existing relationships with UK supermarkets.

WHAT HAS HAPPENED SINCE WE SAID BUY?

The earnings upgrades continued after the company delivered a sizzling first half update (21 November), with sales up 12% and pre-tax profit jumping 24% to £81.6 million beating consensus expectations.

Growth was driven by ‘effective inflation recovery’ and ‘resilient’ volume growth across four UK food categories. Tight control of costs and a positive contribution from rapidly expanding pig farming operations saw the operating margin expand to 6.8% from 6.1% in the same period of 2022.

Since the update, consensus earnings per share estimates have increased by around 5% for both 2024 and 2025 according to Refinitiv data.

Shore Capital raised its own 2024 earnings forecast by around 5% and commented: ‘We see Cranswick’s considerable investment in the UK food supply chain and food security as a major contributor to its margin enhancement.’

Berenberg noted Cranswick’s competitive moat is expanding as its market share increases on the back of the outperformance of its key customers-namely Sainsbury’s (SBRY), Tesco and Marks & Spencer (MKS).

‘Cranswick will continue to pursue investment in capability expansion and partner with its key customers to deliver growth in underdeveloped opportunities such as pet food,’ added the analysts.

WHAT SHOULD INVESTORS DO NOW?

We believe investors should stick with Cranswick as it continues to benefit from its investment programme and ramps up volumes in its emerging pet food business. 

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