I’m fully invested, but my FTSE 250 watchlist has several names that I consider to be stocks to buy. And the number-one opportunity for me is UK food producer Cranswick (LSE: CWK)
Here’s why I like it:
- The business operates in the food industry, a sector known for nurturing enterprises with consistent cash flows
- There’s a strong multi-year record of growth
- The share price has been in a consolidation pattern since 2018, but progress in the business has continued, suggesting that value has been building
- There’s a strong balance sheet with just a small net debt position, and the business is comfortably financed
- A recent positive trading update has catalysed the stock and it’s been moving higher
I’m looking at Cranswick now as a potential long-term investment. And it seems capable of delivering its shareholders capital growth from a rising share price and an increasing stream of dividend income.
Can history repeat?
In the most optimistic scenario, the next decade could be as lucrative for investors holding Cranswick as the previous 10 years has been. Although positive expectations can be thwarted if the business runs into operational or macro-economic challenges.
Cranswick could struggle to progress and we may even see an extension of the stock’s consolidation with the share price going essentially nowhere in the coming years.
It’s even possible for investors to lose money on the shares over the next few years – all stock-market investing requires us to accept risks in order to be aligned with opportunities.
Nevertheless, Cranswick delivered an upbeat first-quarter trading statement on 24 July.
The company said it made a strong start to the year and business momentum continued into the second quarter. For context, Cranswick’s trading year runs until 25 March. So there’s a fair way to go before we see how the first half turns out for the business.
Resilient demand
But the directors said demand has been resilient in the company’s core UK categories. And they put that down to the UK consumer recognising the quality, value and versatility of Cranswick’s pork and poultry product ranges in these cash-strapped times.
The directors remain cautious about current market and wider economic conditions. But they reckon the outcome for this financial year will likely be ahead of their previous expectations.
Chief executive Adam Couch said Cranswick’s ongoing positive progress reflects the “substantial” and continuing investment in the asset base. And it also speaks of the good performance of the firm’s employees.
City analysts expect earnings to increase this trading year and for the year to March 2025. But the gains they’ve pencilled in are modest mid-single-digit percentage figures.
However, they also expect the dividend to rise a bit each year. And Cranswick has an unbroken record of dividend-raising stretching way back before the pandemic and through those difficult years too. I think that outcome underlines the firm’s defensive, cash-generating characteristics.
Set against those estimates, the forward-looking earnings multiple is around 15 with the share price near 3,364p. And the anticipated dividend yield is just under 2.6%. That’s not a huge yield. But the compound annual growth rate of the dividend is running at just over 8%.
I see the valuation as fair and would dig in with deeper research right now.
