Why Cranswick plc could be a top pick for savvy growth hunters

The Motley Fool

Shares in food products supplier Cranswick(LSE: CWK) gained as much as 4% today after the company released its first quarter trading update. Revenue in the three months to 30 June was 27% ahead of the same period last year.

Although the company's top-line growth benefitted from recent acquisitions, revenue, on a like-for-like basis, still managed to grow at an impressive rate of 21% on strong domestic volume growth, with all product categories making a positive contribution.

Rising costs

On a less optimistic note, the company saw input costs rising during the period. Cranswick is not alone in facing higher raw material costs, as other food manufacturers have also reported sharply rising costs in recent months. What's more, like most other food producers, it has managed to pass on some of the rising costs to consumers in the form of higher prices, which partially mitigated the impact on margins.

And despite these cost headwinds, Cranswick continues to invest across its asset base to add capacity and capability. The company today reported further progress made at its new, purpose-built continental products factory in Bury, Greater Manchester. Elsewhere, it has continued to invest in its pork processing facilities both at Preston near Hull and at the recently acquired Ballymena site in Northern Ireland, which will increase pig processing capacity and drive further operating efficiencies.

Not cheap

At first glance, the stock doesn't seem cheap, trading on a price-to-earnings (P/E) ratio of 23.5. That said, I can see why investors may be prepared to pay a premium for its shares.

It has an impressive growth track record, with a compound annual growth rate in adjusted earnings per share of 10.4% over the past five years. And looking ahead, City analysts expect the company to deliver bottom-line growth of 12% this year and 7% next year. The stock only yields 1.6%, but that is from a payout which is covered 2.7 times by earnings.

Structural decline

Another stock worth a closer look is specialist distributor Connect Group(LSE: CNCT). The company, formerly known as Smiths News, has just delivered its trading update covering the 45 weeks to 15 July.

Total group revenue fell 1.3% in the period, due to a continued decline in newspaper and magazine sales, which offset revenue growth elsewhere in the group. The company's shrinking top-line reflects its struggle to grow, but this was to be anticipated given the structural decline in print media. Moreover, the fall in revenues was in line with management's expectations.

Elsewhere, it was a different story. Total parcel freight revenues rose 4%, while its Pass My Parcel's volume run rate continued to increase. Thanks to core growth, new client partnerships and the development of additional services, the volume of parcels handled in June 2017 averaged 23,400 per week, which represents an increase of 149% on the same period last year.

Looking forward, City analysts expect underlying earnings to fall by 13% this year, before bouncing back by 5% in 2018. This gives Connect a forward P/E of 6.2 (falling to 5.6 by 2018), which means it's deeply under-valued. Additionally, the stock boasts a bumper yield of 9%.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.