The Cranswick (LSE: CWK) share price is perky today, up more than 10% as I write on the release of the first-quarter trading update and an acquisition announcement.
And what a performer the food products supplier has been. Over seven years, the share price has risen around 240% at today’s 2,818p, driven by steady operational progress and generally rising earnings. Yet it was as high as 3,386p in the summer of 2018, falling back when growth in earnings looked like it had stalled.
“Strongly ahead” in the Far East
However, I think the correction has blown a little froth off the enthusiastic valuation the stock had attracted and it’s worth revisiting now. Indeed, today’s report reveals to us that trading in the first quarter to 30 June has been “encouraging” with revenue up 1.5% compared to the equivalent period the prior year against “strong comparatives.”
Exports to the Far East were “strongly ahead” because of demand from China after an outbreak of African Swine Fever in the region. And the firm is ploughing money back into the business to support further growth by adding new capacity and capabilities, and by focusing on improving operating efficiency. One example is the company’s new £75m poultry processing facility at Eye in Suffolk, which will “more than double” existing capacity. It’s set to be commissioned in the spring of 2020.
And the firm has been on the acquisition trail too, today announcing it has just bought Katsouris Brothers Limited, which it describes as “a leading Mediterranean food products business.” The initial cost of £43.5m was funded from Cranswick’s existing debt facilities, and there’s a further deferred contingent consideration of “up to” £7m payable “dependent on the future performance of the business” over the 14-month period to 30 September 2020.
Growth firmly on the agenda
There seems no doubt that Cranswick has future growth in mind, and based on the company’s performance in the past, I wouldn’t bet against it being successful again. City analysts have pencilled in a double-digit percentage increase in earnings in the mid-to-high teens for the trading year to March 2021.
Meanwhile, the forward-looking earnings multiple for that year runs near 18 and the anticipated dividend yield is around 2.2%. I think that valuation is fair considering that Cranswick has an impressive multi-year record of increasing its revenue, earnings cash flow and the dividend.
The firm has impressed me over the years with its consistency, which suggests operations have defensive characteristics and could be less prone to cyclical gyrations than some other businesses. The quality metrics have been good too, with the return-on-capital figure, for example, running just above 15%. To me, growth from a steady enterprise like Cranswick is more valuable than growth from more volatile outfits because it seems less likely to reverse direction later. I see the stock as attractive.