Investment Column: Cranswick's shares bring home the bacon

DTZ Holdngs; Indian Energy
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The Independent Online

Our view: buy

Share price: 871p (+11p)

Underlying sales growth at the big four supermarkets have suffered a sharp slowdown this year, as lower food price inflation and a cautious consumer have taken their toll.

But sales have sizzled at Cranswick, which supplies pork to Tesco, Sainsbury's, Asda and Morrisons, and the Co-operative Group. Sales, which strip out the impact of acquisitions, rose by 6 per cent in the first quarter to 30 June, an upturn from the 4 per cent in the fourth quarter.

Cranswick was also boosted by consumers snapping up cooked meats and sausages during the football World Cup. The pork sausage specialist itself scored with the acquisition of CCF Norfolk, a supplier to Tesco, last June. CCF Norfolk's revenues increased by 13 per cent in the quarter, swelling Cranswick's total sales by 19 per cent. While the local pigs will not be grunting in delight, CCF Norfolk has already increased capacity from 10,000 to about 13,000 pigs a week.

Cranswick also plans to ramp up production at other facilities, including its Lazenby's gourmet sausage factory in Hull and at its cured bacon facility at Sherburn-in-Elmet, West Yorkshire.

Other tasty morsels for investors are that, despite higher pork input prices, Cranswick is not suffering any margin erosion, partly due to increased volumes and further operating efficiencies.

But not all of its numbers performed in the latest quarter, as it cited a "reduction" in international sales. However, overseas only account for a small proportion of its sales and we think that Cranswick's shares, which trade on a forward 2011 price-to-earnings ratio of 12.1, have legs. This is not only because it appears to have genuine momentum, but also as the company has a strong track record of growing its dividend and earnings per share. Therefore, we retain our buy recommendation after tipping Cranswick at 755p in February.

DTZ Holdngs

Our view: Avoid

Share price: 61.75p (-0.25p)

The property advisory group DTZ yesterday reported a return to full-year profits, with analysts predicting that profits before tax would rise to £11m in 2011, before jumping to £20m the year after.

The group's chief executive, Paul Idzik, says that he is confident even of hitting the more challenging £16m, as forecast by some analysts.

Indeed DTZ talks a good game, the swing into profit is a record for the group, says Mr Idzik, while the restructuring of the group, its debt reduction and its renewed practices have been a phenomenal success.

The problem for investors is that DTZ isn't a great bet. Despite the confidence over profit numbers, the company says that the property market is something of an unknown quantity, and because of that, there will be no final dividend for punters.

Mr Idzik says that shareholder value will be better created by pumping funds into organic growth projects, and says that the analysts at JP Morgan Cazenove, who reckon that DTZ shares have underperformed the market by 10 per cent in the last three months, have the group's categorisation wrong.

"We are talking to them about that," says Mr Idzik, who says that JP Morgan incorrectly lumps DTZ in with property Reits.

We think things have got better for DTZ, but cannot agree with the group's dividend decision, and therefore would not back the stock.

The fact that the shares have lost 23 per cent of their value in the last three months means that we would wait for better news before we turn more positive. Avoid.

Indian Energy

Our view: Avoid

Share price: 43p (-1.75p)

Indian Energy's full-year results, published yesterday, show revenues up by 94 per cent to £2.21m, but losses after tax up by an even bigger 114 per cent to £3.4m. Rupert Strachwitz, the chief executive of the Indian wind farm operator, tried to put a brave face on things. "Indian Energy has made enormous progress in the last year," he said, pointing to the bedding-down of the first wind farm – at Gadag Plains in Karnataka – and the group's listing on Aim in September.

But the stock's behaviour since then is a concern. After launching at 87p per share, it has fallen fairly steadily. Yesterday alone, it dropped by 3.6 per cent, not helped by either the financial results or the announcement of plans for a £2m loan facility agreed with a major shareholder.

Wind energy has huge potential in India. And there is likely good news ahead for Indian Energy. But the stock is still a risky choice for now and should be avoided. Avoid.