Cranswick shares have soared more than 50% over the past year, but this week a gloomy profit forecast sent it into retreat.
In a trading update on Monday, Cranswick said it expected first-half EBIT to be flat, despite reporting 11% like-for-like sales growth for the period. It blamed a 10% rise in pig prices over the past year and higher than expected start-up costs at its pastry facility. The news sent its shares tumbling more than 4% to £10.96.
Broker N+1 Singer said the trading update was “effectively a profit warning” and put its ‘buy’ recommendation under review. “The extent of the margin fall is a big surprise and despite the possibility of some recovery in the second half on the back of positive pricing discussions, we feel there is a real possibility of a structural shift in Cranswick’s margin dynamic,” said N+1 Singer analyst Sahill Shan.
Investec analyst Nicola Mallard was more upbeat. Although she cut her full-year pre-tax profit forecast by 7% £49.4m, she expected margins to normalise next year. “Such inflation has been accommodated in the past while still delivering strong profit growth,” she said.