Investors should rack up a position in retail meat packing outfit Hilton Food (HFG).

Hilton is growing its volumes with supermarkets around the world and has opportunities to export its proven, cash generative business model to additional territories with existing and new retail customers.

This should offer powerful catalysts for further share price appreciation.

Tasty opportunity

Hilton Food supplies the likes of Tesco (TSCO), Ahold Delhaize and Coop Danmark from state-of-the-art plants that use automation and advanced robotics. Raw meat is processed, packed and delivered to retailers’ distribution centres or stores.

Shares views Hilton as a relatively defensive investment. Supplying red meat staples such as beef, lamb and pork, Hilton’s cash generation and ungeared balance sheet provide the firepower to fund overseas expansion.

Supplier consolidation in the industry favours scale operators such as Hilton, able to produce private label packed meats cost effectively while meeting high traceability standards.

Overseas earner

Full year results (30 Mar) revealed 21% growth in pre-tax profits to £33.7m, with net cash increasing by £20m to £32m. Volumes in Western Europe grew by 3.8%, the UK and Republic of Ireland; the main drivers being Tesco’s continuing turnaround.

The supermarket giant’s planned merger with Booker (BOK) would be a further positive, as it could increase exposure to the convenience and foodservice channels.

In Australia, the contribution from Hilton’s joint venture (JV) with retailer Woolworths is ramping up. The JV already operates three facilities ‘down under’ and Hilton is investing £68m in a second facility in Queensland.

Due to open in 2020, this new plant will enable Hilton to service Woolworths’ entire Australian store network, materially enhancing profit prospects. Meanwhile, Hilton has entered into a partnership with Portugal’s leading grocer Sonae, taking Hilton into its fourteenth European country and boosting near-term earnings growth.

Peel Hunt forecasts 9.5% year-on-year growth in pre-tax profit to £36.7m for 2017, rising to £38.3m in 2018.

Based on Peel Hunt’s 2017 earnings and dividend estimates of 35.9p and 17.5p respectively, Hilton trades on a rather meaty prospective price-to-earnings ratio of 19.9.

However, this is justified by the high quality of business, generating strong cash flows and with exciting overseas expansion potential. And, the dividend, which has grown every year since Hilton’s 2007 flotation, offers a yield of 2.4% and is forecast to grow to 18.5p in 2018.

Hilton Food (HFG) 714.5p

Stop loss: 571.6p

Market value:  £525.5m

Market value: £525.5m

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