On the 24th of May, Cranswick plc announced its audited preliminary results for the 52 weeks ended the 26th of March 2022.
Revenue increased by 5.8%, while ROCE was 16.9% (lower than the previous year in which it was 17.2%).
What I like about Cranswick is the steady growth it has achieved over long periods. The compounded average growth of revenue since 2005 is around 11%, and it achieved it with all the years growing except one (2019).
The ROCE does not seem typical of a commodity business. And it is in a defensive and strategic sector. In fact, we see that it was able to maintain its growth even in this challenging macro-environment as it did during the pandemic.
Shareholders also benefit from this growth. With the announcement of increasing the dividend by 8% this year, it will achieve 32 years in a row of increases.
What is the strategy of Cranswick?
Cranswick targets its growth in two different directions. On one side, it is widening its offer. Poultry production revenue is now 20% of total sales, with an increase of 30% during last year. Apart from that, two of the three acquisitions during the previous year were in Mediterranean products, diversifying its offer further.
On the other side, it aims a vertical integration to control the total supply chain better. The third acquisition, in the Pet foods sector, will also help this aim.
What is the Intrinsic Value of Cranswick?
It isn’t easy to put the quality of a company into numbers, especially when it also grows and still has future opportunities in the same sector.
To reflect these key factors, we could either use a higher multiple or increase the expected cash flows in the future.
In my case, and just for rough estimation, I assume that within 3-5 years, it will get an EBIT of GBP160 million. With a multiple of 15, we get GBP 2,400 million, which, divided by the number of shares (53.21 million), gives us a target price of GBp4,510.