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Cranswick upgraded to ‘Buy’ by Liberum following recent plunge as broker predicts higher export profits

The broker said while the next 12 months could bring “some challenging UK trading conditions”, it expected “some offset from higher export profits"
Liberum cited a growing pork supply shortage in China as a catalyst for higher exports

Cranswick plc (LON:CWK) has been upgraded to ‘Buy’ from ‘Hold by analysts at Liberum following a recent plunge in the share price as it expected higher export profits to offset some of the declines in UK trading.

In a note to clients, analysts said the recent drop of around 17.5% in the FTSE 250 food producer’s share price since October had brought the price “back below their five-year average [price-earnings ratio] for the first time In two years”.

READ: Cranswick half-year profit declines during "uncertain" domestic market conditions

The broker added that while the next 12 months could bring “some challenging UK trading conditions” relating to Brexit, it expected “some offset from higher export profits as demand & prices reflect a growing supply shortage in China relating to African Swine Fever”.

In its half-year results in November, Cranswick reported that group operating pretax profit was £42.6mln compared with £44.5mln a year ago. Revenue, however, rose to £719.2mln from £714.6mln, helped by a “significant increase” in sales of poultry products.

The group also said at the time that continued uncertainty the UK's exit from the EU had been driving volatility in currency markets and uncertainty within the European labour market, with key issues for the business including access to and cost of labour, and the potential for import tariffs on EU pork and continental food products.

However, the critical part of Liberum’s upgrade was the commissioning of Cranswick’s new 1.2mln birds per week poultry plant in about a year’s time, which would double the firm’s existing capacity and provide “scope to lift revenue per bird and should lower unit costs of production”.

Analysts also said they expected “a new wave of higher [earnings per share] growth” as the commissioning of the plant came closer.

In late-morning trading Thursday, Cranswick shares were up 2.8% at 2,828p.

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Cranswick plc Timeline

May 24 2016

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