Given the recent fervour surrounding vegan sausage rolls, not to mention the huge gains seen in shares of plant-based meat substitute firm Beyond Meat in the US, you’d be forgiven for thinking we’re witnessing a big shift in our global food habits.
I’d say that’s still unlikely for now. That’s why I continue to like meat processor and FTSE 250 business Cranswick (LSE: CWK), even if its share price has been rather volatile since last October following years of solid gains.
Does the positive reaction to today’s full-year results indicate that now might be a good time to buy in? I’m inclined to think so.
Big investment
Statutory pre-tax profit for the year to the end of March came in at £86.5m — a slight reduction on the £88m achieved in 2017/18. At £1.44bn, revenue was pretty much flat.
As CEO Adam Couch commented, however, these numbers were achieved “against a backdrop of highly competitive market conditions and ongoing, Brexit-related, political and economic uncertainty” and following “three years of very strong growth”.
Despite the slight drop in profit, there’s still much for prospective investors to like.
For one, like-for-like volumes of pork exported to Asia jumped 16.1% as a result of African swine fever ravaging China’s pig herds. According to the company, the damage done could last for a number of years.
Less specifically, Cranswick continues to generate very decent returns on capital employed, a metric regarded by one of the UK’s best fund managers as extremely important. This came in at 18.4% for the last financial year.
The company continues to boast net cash on its balance sheet, even if the £6.3m announced today is down from the £20.6m last year. The 4.1% increase to the full-year dividend (to 55.9p per share) was also nice to see.
Perhaps most importantly, Cranswick continues to invest in its assets to enable it to expand in the future.
A total of £79m was spent in 2018/19 to “add capacity, extend capability and drive efficiencies”. The firm is currently building a new poultry facility in Suffolk and recently completed a Continental Foods facility in Bury.
For such a quality company with still-good growth prospects, I think 20 times earnings is a reasonable price to pay.
One for the long term
Another FTSE 250 stock that I think could be a decent long-term buy is metrology firm Renishaw (LSE: RSW).
That’s despite the fact that its shares — like those of Cranswick — have been unsettled of late due to the company enduring a period of difficult trading and less demand for its products in Asia.
Clearly, whether Renishaw’s share price changes direction or not will depend on whether conditions improve (not to mention the speed of a resolution to the ongoing trade spat between China and the US). It’s already had to cut guidance on revenue and pre-tax profit twice this year.
Taking this into account, I understand why some investors may want to hold off buying for now.
That said, Renishaw’s seriously high returns on capital and operating margins shouldn’t be ignored. Nor should its £120.5m net cash position.
As we never tire of saying at the Fool, it’s the quality of a business that matters in the long run, not what the shares do in the near term.
It’s on my watchlist for now.
