In a note on the firm’s interim results – due to be published on Monday November 26 – Panmure analyst Damian McNeela, said: “Pork prices tend to decline seasonally over the autumn but this year that has not been the case. This has resulted in Cranswick entering into negotiations, unprecedented for this time of year, with the retailers.
Busy Christmas period
“Given the importance of securing price increases ahead of the busy Christmas period, we believe there will be a focus on the progress being made in this regard.”
UK pork prices continue to rise and now stand at 160p/kg. Key factors driving the market are the soaring costs of pig food, after a poor global grains harvest, coupled with uncertainty over supply after the EU ban on stow stalls comes into force on January 1 2013.
Cranswick’s sales and marketing director, Jim Brisby, told the reporter last month: "There have been some fairly dramatic moves in terms of the price we’re paying for pigs. They’re still not enough to sustain the prices of the pig producer. This is something that we’ve been engaged with our retailers on and we’ve in constructive dialogues with all our customers.”
Panmure Gordon forecast Cranswick would report 29% growth in adjusted profit before tax to £23.4M. A lower tax rate would result in 37% adjusted earnings per share growth to 40.1p.
“Given the uncertainty surrounding the second half of 2013's margin performance, due to higher pork prices, we believe a discount rather than the usual premium to its peer group is warranted. As such we believe the current valuation looks fair.”
Panmure maintained its ‘hold’ recommendation but reduced its target price to 800p, which equated to 6x earnings value/earnings before interest, tax, depreciation and amortisation for 2013.
‘Robust margin recovery’
Meanwhile, last month Shore Capital said Cranswick had delivered a"robust" margin recovery in the first half of the year.
Underlying turnover in the six months was 5% ahead of the same period of 2011, driven by the low relative price of pork to other proteins and the meat’s versatility.
Total sales were 6% higher after taking into account the contribution from Kingston Foods, which was acquired at the end of June 2012.
