Demand Spurts for Cranswick Plc offerings; Share zooms 29% YoY

The outbreak of the epidemic has completely changed the pattern for food shopping worldwide. The COVID-19 outbreak and social distancing guidance dramatically increased stockpiling of grocery items across the world, and the UK is no exception. According to some reports, grocery sales of British supermarkets have soared to ~ £10.8 bn over the past four weeks, and this number is even higher than any festive season sales.

An unprecedented demand spurt is benefiting UK based food processor Cranswick Plc, the group is a United Kingdom-based supplier of food products and is engaged in the manufacturing and supply of food products to British grocery retailers. The company offers a range of pork meat, gourmet sausage, cooked meats, and other products through retail, food servicing and manufacturing channels and is also catering the big4 British supermarkets.

The sudden spurt in demand for the company’s offering in its core market UK, amidst COVID-19 pandemic, is set to benefit the company in near-term, however, post lockdown, we can see significant changes in the shopping patterns. The group’s more than 95% of total revenue comes from its home market- the UK. However, the prevailing demand trend is supporting CWK shares on LSE, while its stock is oscillating in a positive zone, the broader indices are down up to 30% since the outbreak of the novel coronavirus.

Moreover, the British food and meat processor Cranswick Plc is also capitalising on distortion caused by spreads of African Swine Fever (ASF), the company recently reported in its third-quarter trading statement that export sales of the company have leapt up exceptionally because of the spread of African Swine Fever (ASF). Though, the market condition in their core market-the UK remains highly competitive, but the spread of African Swine Fever in their Far Eastern export market has provided humungous opportunities to ramp up sales in this region on commercially favourable terms. Further, the group expect this opportunity to sustain in the medium term given the UK remain ASF free. And also, the UK pork meat industry remains extremely cautious with rigorous biosecurity rules being put in place.

Recent Investments

In the third quarter trading update, the company reported about the setup of a world-class £75 million poultry processing unit in Eye, Suffolk continues to be as per the plan, with the further boost up phase now in progress. Also, the company has increased investment in its pig rearing and farming activities during 3QFY20 via the possession of Packington Pork Limited. This transaction has significantly accelerated the company’s self-sufficiency in UK pigs’ processes and getting direct control over a significant part of the group’s supply chain for premium pigs. Also, the ongoing investment of the group is the crucial part of the company's second nature of viability plan with the objective of creating a unique and innovative sustainability standard for the food industry.

However, the company's net debt has been increasing towards the end of the 3QFY20 due to a surge in the seasonal working capital requirement, ongoing capital investment programme and acquisition of Packington Port Ltd in December 2019.

Packington Pork Limited Acquisition increases Cranswick's self-sufficiency in UK’s pigs processed industry to over 25%

Cranswick plc on December 17, 2019, announced that it had acquired Packington Pork Limited from the Mercer family. The acquired company which concentrates in the production of British free-range and outdoor bred pigs has pig farming and rearing operations and operates primarily from a range of locations across Nottinghamshire, Lincolnshire and Staffordshire. There has been 25 per cent increase in Cranswick's self-sufficiency in UK pigs processed industry due to this transaction, not only this it has also secured the direct control of the company over a substantial part of its supply chain for premium pigs, underpinning its assurance to grow a sustainable and traceable in the various processes in the food chain from production to consumption operations.

Relative Price Performance of CWK on LSE

The £1.93bn market-cap Cranswick Plc is the UK's largest food processor company. The outstanding market capitalisation of the company ranks it among the mid-caps listed and traded on the LSE. Amidst ensuring bearish market, CWK shares are doing quite well on the LSE, as its shares are up by ~ 9% on a YTD basis and have bagged about 6% in one month, also sporting a YoY price return of 29% amidst steep turmoil on the stocks exchange. Its benchmark FTSE 250 index has tumbled approximately 28% on a YTD basis and tanked ~ 24% in a year-over period. This reflects that CWK shares have significantly outperformed the benchmark index by 37% and 48% on YTD and YoY basis, respectively.

1-year Relative Price Performance CWK vs FTSE 250. Source (Thomson Reuters)

This is a spectacular performance of CWK shares, recorded amidst steep bearish trend on LSE.

In a year over the period, its shares have registered a 52w high of GBX 4,020 (as on Mach 27, 2020) and a 52w low of 2,454 (as on July 18, 2019) and at the current price of GBX 3,630 (as on April 07, 2020, before the market close), stocks were trending towards its 52-week high price level, which is a positive price trend.

Technical Overview

A Bullish Chart Pattern

Price Chart (as on April 07, 2020, before the market close)

While charts of the broader indices are quite bearish, CWK stocks are moving quite in the opposite direction to it. Here, in this chart, we spotted that, CWK shares are trading significantly away from their long-term crucial support level of 200-day SMA, which is typically considered as bullish price trend on the chart. The Price/200-day SMA ratio (at the time of writing, at 02:22 PM GMT, before the market close) stood at 1.15x, implying that current price is ~ 15% above its 200-day SMA level. This is when a vast majority of stocks and broader indices are trading below their crucial support level of 200-day SMA.

Further, at the current price as highlighted in the price chart, its shares are trading above its 5-day, 10-day, 20-day, 30-day, 50-day and 100-day SMAs, which we generally saw in a string bull rally.

Also, the Moving Average Convergence Divergence (MACD) is growing, with the difference between 12-day exponential moving averages (EMA) and 26-day EMA remaining positive, again a favourable indication, and the MACD line was oscillating above the 9-day SMA signal line.

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