Smaller Companies: Cranswick is the market pet

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The Independent Online
CRANSWICK, the pet food to agribusiness concern, has seen demand for its shares soar in the past year as it revealed impressive figures, writes Richard Phillips.

Having reached a high of 267p, the shares have since slipped back to 244.5p. That still leaves them yielding a juicy 5 per cent, however, suggesting the scope for further gains ahead.

Cranswick is the largest supplier of tropical fish in the country, in the wake of its pounds 4m acquisition of Tropical Marine Centre in Hertfordshire two years ago.

As well as sales to companies to grace reception areas, tropical fish are a burgeoning area of interest for young children. Cheaper than hamsters and the like, they nevertheless offer far superior margins to their pedestrian predecessors, the humble goldfish, while still being relatively easy to look after.

The company also sells bird seed and pet food, a business where it is benefiting from the growth of pet superstores. Sales in this division are rising rapidly; from pounds 6m in 1994, they reached pounds 17.9m in 1997.

While the group shares with others in the sector the low margins typical of commodity food processors, pre-tax profits have also been on rising, from pounds 2.3m in 1994 to pounds 4m in 1997 on sales of pounds 157.6m.

Sutherlands, the stockbroker, forecasts that full-year pre-tax profits could reach pounds 4.5m, which translates into earnings per share of 22p (19.5p). That leaves them on a prospective p/e of a little over 11 times earnings - hardly over-demanding.

Elsewhere, Cranswick is a major supplier of pork products, from hams to sausages: many of the sausages on the shelves of Sainsbury's are made by Cranswick. It wants to expand this side as well: although margins here tend to be low and volatile, there is no reason to suppose that sensible deals cannot enhance shareholder value.

Continuing concerns over mad cow disease leave Cranswick well placed to exploit this window of opportunity. On a medium-term view, the shares are a buy.