Investors who fear they’ve missed the rally at Tesco (TSCO) can play the supermarket’s renaissance through Cranswick (CWK). The pork processor’s share price pullback is a buying opportunity ahead of half year results (29 Nov).

A confident Christmas outlook should stoke appetite for this attractive growth and income stock.

Gourmet pick

Cranswick supplies UK food retailers and the food service sector with proteins spanning gourmet sausages, fresh pork and bacon. The £1.11bn cap has a formidable track record, having suffered a solitary year of pre-tax profit decline since 1990. It continues to take market share by organic and acquisitive means.

According to the latest Kantar Worldpanel grocery share figures (15 Nov), Tesco grew at its fastest rate in three years over the 12 weeks to 6 November. Sales increased 2.2% with the bulk of the gains made through own-label products including the premium Tesco Finest range.

This is great news for Cranswick, which supplies products under own labels including Tesco Finest and Sainsbury’s (SBRY) ‘Taste The Difference’ and is geared into trends towards premium products, convenience, eating out of home and food on-the-go.

Crown-ing glory

Liberum Capital upgraded (11 Nov) its rating from ‘hold’ to ‘buy’ with a maintained £25 price target. The broker argues April’s £40m acquisition of Crown Chicken provides an opportunity to replicate Cranswick’s pork processing success in poultry.

Building on 2014’s £18m takeover of Benson Park, the broker believes there is scope for vertically integrated poultry producer Crown to more than double its profit contribution to Cranswick in the mid-term.

UK food retailers do have strong buying power and rising pig prices are unhelpful. Yet Cranswick sources 20% of its pigs internally and has pedigree in passing on rising pig prices. Given its well-invested assets and growing scale, Cranswick is primed to pick up further retail contracts in pork with competitors Tulip, Karro and Tican struggling. Exports to China, a strong market for off-cuts including chicken feet, are growing too.

For the year to next March, Liberum forecasts improved pre-tax profit of £73.9m (2016: £65.6m) ahead of £80.3m by 2018. Though Cranswick trades on a punchy 18.7 times this year’s 118.7p earnings estimate, its growth potential and track record justify the multiple. Cash-generative and with a strong balance sheet, Cranswick has increased its dividend every year since 1990 and is forecast to grow the shareholder reward a further 10.1% to 41.3p this year. (JC)

Cranswick CWK) £22.16

Stop loss: £17.73

Market value: £1.11bn

Prospective PE Mar 2017: 18.7

Dividend yield: 1.86%

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