How the Food Retailer Stocks are Performing Amid COVID-19 Pandemic: Cranswick PLC & J Sainsbury PLC?

The heightening economic damage from the coronavirus has crashed oil prices and knocked few of the European and London stocks on Tuesday (21st April 2020). However, the UK market gained and got pacified today (22nd April 2020, at the time of writing), with positive corporate updates trending. Meanwhile, the G20 agriculture ministers stated against the unjustified restrictive measures that can potentially disrupt the global food supply and urged G20 countries to ensure continuous food supply as essential. Today, we will discuss a midcap food producer, Cranswick PLC (CWK) and blue-chip food and drug retailing stock, J Sainsbury PLC (SBRY). While the stock price of CWK surged slightly today by 0.05 per cent, SBRY fell by 0.30 per cent (at the time of writing, GMT 11AM), respectively. Let’s have a glance over their respective business model, financial position and outlook.

Cranswick PLC (LON: CWK)

The CWK group is a United Kingdom-based food processor. It supplies fresh and value-added food products to the UK grocery retailers and food services comprising canned meat, gourmet sausages, cooked meats, cooked poultry, charcuterie, hand-cured and air-dried bacon and gourmet pastry products.

(Source: Interim Presentation, Company Website)

Upcoming Results: On 19th May 2020, the company will release its preliminary results for the financial year 2020.

A Glance of Sales in H1 2019-20 by Category and Channel

  • Significant fresh pork growth was driven by Far East demand as well as retail growth in the UK.
  • Convenience sales comprise acquisition of Katsouris – Like-for-like (LFL) sales in year +0.5% for Continental and Cooked meats.
  • In Gourmet, robust bacon and pastry sales were offset by a decrease of sausage & burgers sales against the exceptional summer of 2018.
  • Led by added value and increased cutting (impacting total volume performance), the company has delivered poultry growth.
  • In H1 FY20, the retail sales performance bolstered by core customer recovery and new business wins; the food service growth sustained through customer growth and new business wins; the wholesale business decline was offset by growth in Export performance; and Impact of African Swine Fever driven robust performance in the Far East.

(Source: Interim Presentation, Company Website)

Key Developments of 2020

  • On 27th March 2020: Cranswick chairman had reduced its stake by selling his shares.
  • On 11th February 2020: The group announced that it had acquired the Buckle family’s pig farming as well as rearing operations.

Third Quarter Trading Update – Reflecting Decent Performance

  • For the year ending 31 March 2020, the Group's Adjusted Profit Before Tax is now expected to be higher than current market forecasts.
  • As per the interim results released on 26 November 2019, the company had delivered a decent performance, despite a challenging environment in the UK market. Also, there is a positive start to the year, with reported revenue ahead by 7.1%; total export revenue up 65%, including Far East export revenue 94% ahead; and record H1 capital expenditure of £56 million to provide the platform for future growth. All four products categories have growth in revenue.
  • In exports sales, the group has continued to be exceptionally solid in the current quarter while the United Kingdom industry stays on high alert with intensive biosecurity protocols in place.
  • During the quarter, the group's investment stood at a record level as the company is enhancing its existing capacity and new capacity as well as accelerated investment in its pig farming and rearing operations. The group existing capacity will be doubled after £75m investment made in the poultry primary processing facility at Eye in Suffolk.
  • As anticipated, net debt improved in the current period reflecting the usual seasonal uplift in working capital.
  • The company’s borrowings continue to be managed conventionally with committed, GBP 200 million of unsecured facilities, which is providing for considerable headroom to support the CWK's growth strategy.

Share Price Performance

Daily Chart as of April 22nd, 2020, before the market close (Source: Thomson Reuters)

CWK’s shares, at the time of writing before the market close (at 10:30 AM GMT) on 22nd April 2020, were trading at GBX 3,788.00. Stock's 52 weeks High is GBX 4,020.00 and Low is GBX 2,454.00.

Outlook – Decent Performance in the Challenging Environment

The group supplies fresh and value-added food products to the UK grocery retailers and food services including canned meat, gourmet sausages, cooked meats, cooked poultry, charcuterie, hand-cured and air-dried bacon and gourmet pastry products through retail, food servicing and manufacturing channels. Amid COVID-19 stockpiling, demand for the company has shot up significantly. With the Food retailers running empty shelves after lockdown announced by the United Kingdom government, the business is set to benefit as it replenishes the stores and thus benefiting its business. Despite significant capital investments and strategic acquisitions made by the group in Q1FY20, the group is surrounded with strong potential risks, which are carrying high chances to impact the group's performance in FY20. The company stay confident with continued focus on the strengths of the business, which includes the robust financial position, long-standing client relationships, breadth, quality and relevance of the products, and industry-leading infrastructure. The group will support the further successful development of CWK over the near and longer-term.

J Sainsbury PLC (LON: SBRY)

The group is a British general merchandise retailer. Its areas of operations divided into three segments like Retail, Financial Services and Property Investment. The company’s retail segment engaged in the operation of supermarkets and convenience. The group’s strategy is made up of five pillars.

Upcoming Results: On 30th April 2020, the group will release its preliminary results. It will also announce First Quarter Trading Statement 2020-21 and Interim Results Announcement on 1st July 2020 and 5th November 2020, respectively.

(Source: Company Website)

Key Brands

The company's brands include Sainsbury's groceries, Argos, Tu, Sainsbury's Home, Habitat, Sainsbury's Bank, Sainsbury's Energy, Nectar, and Property development and estates.

  • Sainsbury's groceries have become one of the UK's largest food retailers with an increasing online presence, with nearly 250,000 online orders every week. The brand also has over 608 supermarkets, 820 convenience stores under its name.
  • Argos is amongst the UK's leading catalogue retailer, offering more than 89 thousand products online and in-store, to serve 29 million store customers and nearly a billion online visitors every year.
  • Tu, introduced in 2016, is the group's exclusive clothing range and has a presence in over 190 stores. It is the 10th biggest clothing retailer in the UK by value.

(Source: Company Website)

Key Developments of 2020

  • On 20th April 2020: SBRY has launched Volunteer Shopping Cards, which will help the customers who cannot shop for themselves.
  • On 12th February 2020: Roger Davis, as a Chair of the Sainsbury's Bank Board, has notified the management that he intends to step down.
  • On 28th January 2020: The group has committed to investing one billion pounds for becoming a Net Zero business by 2040.

Trading Update – Reflecting Online Growth and Robust Grocery Performance

  • The company witnessed decent online growth and solid grocery performance as it creates one multi-brand with the multi-channel business.
  • The company’s sales from grocery business went up by 0.4 per cent, while the groceries online sales went up by 7.3 per cent for the period. The company’s clothing business witnessed a growth of 4.4 per cent for the period.
  • The sales from General Merchandise declined by 3.9 per cent for the Q3 of the financial year 2020. The total sales from online business went up by 5 per cent for the quarter.
  • The company’s total retail sales (excluding fuel) declined by 0.7 per cent, and sales (excluding fuel) on a like-for-like basis declined by 0.7 per cent for the period.

(Source: Trading Update, Company Website)

Share Price Performance

Daily Chart as of April 22nd, 2020, before the market close (Source: Thomson Reuters)

SBRY’s shares, at the time of writing before the market close (at 10:33 AM GMT) on 22nd April 2020, were trading at GBX 202.30. Stock's 52 weeks High is GBX 237.19 and Low is GBX 171.19.

Short-Term Future Scenario

The progressive efforts towards cost-cutting have led to an increase in efficiencies. This, coupled with the company's focus on synergies from Argos, has resulted in decent financial performance. Keeping up to date with the trend, the company is increasingly pushing the business into the online marketplace, which has been growing at an impressive pace. The company has generated decent momentum across all the business. On year on year basis, client satisfaction has significantly increased. The consumer outlook stays uncertain in the Retail market segment, and the company also stay highly competitive. The company has also introduced 123 new value brand products. In the financial year 2020, the company will improve 200 convenience and 450 supermarkets stores. Moreover, the grocery, clothing and general merchandise markets remained very competitive and marketing-centred industry with straining on the margins. In light of COVID-19, the difficult situation has led people to rush for their grocery shopping, and people are buying food products in higher quantity to stockpile goods in case situation deteriorates further. This has led to a spike in demand for food retailer offerings and for those who supply value-added products to the UK food retailers and food production services.