Most of my share picks these days tend to be based on dividends. But for a bit of diversification I’ve been investigating growth candidates as we head into a new annual ISA allowance.
I’ve been impressed by the performance of Hilton Food Group (LSE: HFG), which has just delivered another cracking set of full-year results.
The company, which specialises in food packaging, is unusual in including tonnage in its figures, with 2018 volumes up 13.5% to 344,784 tonnes. That brought in a revenue gain of 21.5%, leading to a 26.7% boost to pre-tax profit, and a 20.2% hike in earnings per share.
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Expansion
The only slight downer for me was seeing 2017’s net cash of £25.4m turning into net debt of £26.8m, but there have been acquisitions during the year.
Chairman Robert Watson said: “In 2018, we continued to deliver on our strategic objectives to build a significantly bigger and more diversified business,” and that includes global expansion, with the development of Australian joint ventures playing a significant part. If that continues, a modest level of net debt won’t really worry me.
Hilton’s recent steady earnings growth is forecast to continue for the next couple of years, and that comes at a price. We’re looking at P/E multiples of 22 and 19 for 2019 and 2020, which some might see as high for such an unexciting business as food packaging.
But give me well-managed dullness every time — and a progressive dividend yielding around 2.5% adds an extra little attraction.
Favourite
I’m always wary of investing in companies to which I have a personal attraction, and that includes Greggs (LSE: GRG). But when I went there this morning to get my breakfast steak and cheese baguette, the place was crowded, as it typically is, while Subway a few doors away was, as usual, pretty much deserted.
Greggs has been growing its earnings for a number of years, bucking the trend of economic squeezes and belt-tightening. It goes to show that high-quality and modestly-priced high street food offerings will still attract the breakfast and lunch crowd even in tough times.
Another thing I like about Greggs is its marketing success in developing its brand. I think its vegan sausage roll promotion was masterful, as was its response to critics. And one of the things I look forward to most when we’re approaching Christmas is a Greggs’ Festive Bake.
Bright future
Expanding its offering to pre-packed frozen food market seems like a canny move too, and like my colleague Tezcan Gecgil, I can see Greggs’ management quality leading to a healthy long-term future for the company.
But if there’s a downside, it’s the share price. At P/E multiples of more than 20, it looks at least fully-valued to me, and I don’t see the same expansion possibilities (especially not internationally) as I expect from Hilton Foods.
Well-covered dividend yields of a little over 2% add some attraction. But with the share price having soared since mid-2018, I’m half expecting to see it faltering for much of 2019 as investors take profits.
Still, I have until April 2020 to use my next ISA allowance, so I’ll be watching where the Hilton Foods and Greggs share prices go.
