Cranswick PLC (LON:CWK) shares got pricked on Thursday as analysts at Barclays initiated coverage on the pork producer with an ‘underweight’ rating and a target price of 3,500p.
In morning trading, the FTSE 250-listed firm’s shares were changing hands at 3,750p, down 2%.
READ: Cranswick lifts outlook after strong meat sales in first quarter
In a note to clients, the Barclays analysts said: “We see Cranswick's growth decelerating and margins moderating in the near term due to three key factors: 1) a shift from 'premium' to 'value' within own-label food as the UK economy enters a recession, 2) pork prices are normalizing from a cyclical peak, which combined with increased competition among retailers could reverse recent price gains, and 3) labour inflation has picked up (6+%) and COVID-19 has led to incremental costs in the supply chain.”
They concluded: “Given this backdrop, we do not see how CWK can recover costs from consumers who are unlikely to accept price increases and retailers who will be looking to recover their own higher costs.”
On Monday, Cranswick raised its outlook for the year after enjoying strong sales in the past quarter, albeit during which safety measures at its meat factories were criticised after three workers died from coronavirus (COVID-19).
Revenue in the 13 weeks to June 27, 2020, the group's first quarter, was up 24.8% year on year. The company said the level of demand from supermarkets and increased poultry sales thanks to the opening of its new facility in Eye, Suffolk, more than compensated for lower sales from the hospitality sector.
The trend had continued since the end of June, Cranswick added. While retail volumes are expected to begin to normalise in coming months as consumers return to eating out of home, and Cranswick's management was cautious about the longer-term economic impact of the pandemic and Brexit, they said the outlook for the financial year to March 27 “is now expected to be ahead of its previous expectations”.