Quality food producer Cranswick (CWK) has outperformed the UK stock market by 56% over the last six months and is up 23% in absolute terms. There are two major tailwinds working in the company’s favour which should see the shares keep going up.

The lockdown in the UK has temporarily (and maybe permanently) changed consumer demand patterns with an estimated £1bn of extra food spend per week due to the closing of restaurants and pubs, according to broker Peel Hunt.

This plays directly into Cranswick’s strengths as consumers, with little else to spend on, opt for higher quality meats as a way to create family treats.

The scourge of African swine fever which has destroyed around half the pig herds in China also presents a major export opportunity for Cranswick. Analysts estimate that it will take between three and five years to fully replenish.

The company saw strong sales of goods at the back end of 2019 before the coronavirus hit, in preparation for Chinese New Year. While there have been some port issues, Cranswick continues to expect to see around 60% of UK pig meat volumes exported to China, with prices well above average.

Meanwhile, evidence that African swine fever has spread to Eastern Europe means that EU pig prices, which normally trade at a discount to the UK, are instead at a premium because product availability is being hit. That could drive Eastern Europe to import meat from the UK, assuming no hitches with logistics.

One of the key attractions for buyers of Cranswick meat and poultry is the provenance and security of its supply chain, which reflects many years of initiatives and investment aimed at improving animal welfare and protecting the environment.

The company has been moving towards a vertically integrated model and today supplies around a third of its own production needs. It moved further in this direction after the recent acquisition of Packington Pork and the Buckle family pig business, which added over 7,000 pigs per week to capacity.

In these uncertain times, it is even more important to make sure that firms are adequately financed to continue operations and have enough in reserve to face unanticipated events.

Cranswick’s balance sheet is conservatively managed. The business had a total credit facility of £240m, compared with net debt of £113m, at the interim stage in November, giving plenty of headroom.

With strong cash flow, Cranswick is well positioned for continued growth through the crisis and to maintain high returns on capital in the 18% to 20% range.

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