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This deal is set to accelerate Foods Connected’s proposition while retaining its ability to service Hilton’s existing and future customers. It also demonstrates Hilton’s ability to nurture innovative tech solutions. We maintain our 1,030p TP and Buy rating.
Hilton Food Group plc
Hilton Food Group+ (HFG, House Stock at 841p) - Strategic external investment in Foods Connected
These are positive underlying trends for Hilton, albeit we expect a currency headwind. The company has a strong pipeline of opportunities. We reiterate Buy, TP 1,030p.
Hilton returned to form last year, as evidenced by the jump in ROCE. The current year has started well, and the company has a strong pipeline of opportunities. We reiterate our Buy rating and 1,030p TP.
Hilton Foods’ typically short AGM trading update highlights a business continuing to perform well. UK&I trading has outperformed the market YTD supported by unseasonally warm weather and strong Easter trading. In APAC, volume growth has slowed somewhat relative to the H124, but in H124, APAC grew 7% presenting an extraordinarily tough comp - and yet the region remains in growth. We make no changes to forecasts, and retain our 1120p target price at c18x NTM PER, believing that the current rating reflects neither the low risk profile of earnings, nor the long growth runway ahead of the company, nor the more highly cash generative nature of the business model vs peers. Buy.
Hilton Food Group+ (HFG, House Stock at 889p) - Robust trading continues
HFG reported strong FY24 results on Tuesday, with 4.4% volume growth and 11.9% operating profit growth at constant currency. The latter was driven almost entirely by the UK & Ireland (+£15.5m) as seafood profitability recovered and the core meat business saw strong volume growth and mix improvement. This was partly offset by a £5.2m increase in central costs as HFG invested to facilitate future growth. The company expects FY25 PBT to be within what was then quite a wide consensus PBT range of £76.8m to £83.3m. We note the FX headwind and reduce our forecast by £1m to £81m. The results statement and presentation were bullish on the scope for further expansion. In Canada, which is already set to become a significant market from 2027, HFG noted the potential to expand its coverage of the Walmart estate westwards over time, and to help its partner to gain category share. In the Middle East, the partnership in Saudi Arabia is clearly just the first step in HFG’s regional ambitions. In Europe, HFG has expanded its existing partnerships with ICA by category and Zabka & Ahold by geography. In Denmark, it has added a second major retail customer to improve utilisation. These opportunities are being driven by the structural shift to packaged meat, the desire to reduce labour costs through greater automation, and HFG’s strong retailer partnerships and reputation. They can be funded with its strong balance sheet, with net bank debt/EBITDA of only 0.9x. We forecast net debt to increase slightly in FY25E and fall back to c.£130m in FY26E as HFG continues to invest heavily, with core capex of £60-65m in FY25E and £35-40m of strategic capex in Canada and Saudi Arabia on top. Although this will tend to depress ROCE in the short-term, these investments ultimately drive high returns, with HFG continuing to target a 20%+ ROCE.
Hilton Foods on Tuesday provided investors with calm amid the current storm; reporting results in-line with FY consensus and announcing several small additional contract wins. Small FX-related cuts to FY25 estimates are vastly outweighed by the upside on offer from the seven new contracts HFG has won in the past 18 months, on-top of expansion with existing partners. Our new FY27E estimates now factor in a small contribution from the first year of the Walmart Canada and NADEC Saudi Arabia contracts, with PBT growth accelerating from c4% in 2026 to c7% in 2027. We expect these contracts to ramp further in the coming years. We continue to believe HFG is trading at a material discount to fair value given the wide runway ahead of the company yet in the absence of a re-rating, operating performance looks set to deliver for investors regardless. We marginally trim our TP to 1120p, and reiterate our Buy recommendation.
Hilton Food Group+ (HFG, House Stock at 851p) - Strong in the core across multiple markets - currency headwinds strengthen
Hilton returned to form last year, as evidenced by the jump in ROCE. The current year has started well and the company has a strong pipeline of opportunities. We reiterate our Buy rating and 1,030p TP.
HFG has signed a new JV with NADEC in the Kingdom of Saudi Arabia, with production due to start in FY26E. This is a familiar story for HFG – with red meat in the KSA typically sold through in-store butchers rather than centralised packaging – and we expect this contract to demonstrate significant growth over time, similar to its initial UK and subsequent Australian operations. This JV, following a year after the signing of the Walmart Canada contract, underlines the wide growth runway in front of HFG, predicated on a) the cost benefits retailers have historically realised from partnering with HFG, b) global skills shortages which require increased investment in automation and c) the need for retailers to establish greater control over their food supply chains. We increase our FY25 capex forecasts by the c£6.5m up-front investment costs, and make no changes to our profit forecasts at this stage, with significant profit generation from the JV unlikely in the first six months of operation (2H26E) given setup costs. Nevertheless, this contract is yet further proof that HFG is both a higher quality operator with a longer growth runway than the low valuation currently appreciates, and so we reiterate our Buy recommendation and 1140p target price.
Material opportunity – this is a relatively small step in an important new region for Hilton. The population of Saudi Arabia is 33m and there are 500m people in the Middle East. Reiterate Buy, TP 1,030p.
Hilton Food Group+ (HFG, House Stock at 838p) - Hilton of Arabia - Saudi JV announced
Hilton Food Group+ (HFG, House Stock at 941p) - Another 'strong' trading period
Hilton Food Group+ (HFG, House Stock at 888p) - Central Europe site visit - Central Europe site visit
HFG’s FY trading update highlights a FY result in-line with expectations, yet we see several encouraging indicators for performance; 1) that overall volume growth accelerated to 4% YoY in the fourth quarter, despite lapping a tougher comparative period in 2023’s +3%. 2) Premium products are continuing to drive this growth, and HFG will earn a slightly higher profit per kg on these products in the UK. 3) The statement strikes a confident tone on wage inflation, with its “highly automated facilities and strong customer relationships” enabling the business to effectively mitigate the impact of wage inflation. As we look into 2025, our investment case is therefore unchanged; that HFG is a uniquely low-risk operator with a long remaining growth runway and further upside should it win additional contracts. We retain our Buy recommendation and 1140p target price.
Hilton had a strong FY24 and the trends from key customers provide a healthy backdrop for ongoing performance. We reiterate our Buy rating and see room for further multiple improvement as the company demonstrates the strength of its model and broadens its spread of business.
Hilton Food Group+ (HFG, House Stock at 895p) - A 'strong' FY24F confirmed - firmly on the front foot
Hilton Food Group+ (HFG, House Stock at 919p) - Exciting times ahead - supercharged?
We reiterate our Buy recommendation and see room for further multiple improvement as the company demonstrates the strength of its model.
HFG has posted an in-line Q3 trading update, with strong volume performance in all regions, as the c+3.2% volume growth during 1H has continued during the year. In 1H’24A, volume growth accelerated to +3.2% vs +0.2% in 1H’23A; this acceleration has clearly continued into Q3’24A. However, In Q4’24A, the business laps a stronger (volume +3%) Christmas trading period, which we see as the core reason management have not upgraded guidance at this stage. Nevertheless, this encouraging trading update indicates the business is continuing to perform well into the year end. On c14.7x NTM PER, we continue to see HFG’s valuation as undemanding relative to our high-quality peer group. We see a margin of safety in the investment thesis from the Walmart Canada contract, and upside to our medium-term growth rate should the business win a further major contract.
Hilton Food Group+ (HFG, House Stock at 911p) - Invitation to a Group breakfast meeting
The business has unjustly de-rated to a level that we now believe either prices in a) significantly elevated earnings volatility or b) sub-nominal GDP growth. Neither of these is likely, and we believe the shares will re-rate as management continues to deliver. We see six markets (ex-US, China) where HFG is well-placed to win additional contracts that would provide material upside to the shares. We believe the current valuation of c14x NTM PER is an attractive entry-point and see c27% upside to the shares, lifting our target price to 1140p (c18x NTM PER).
Hilton Food had a strong 1H and the trends from Tesco provide a healthy backdrop for ongoing performance. We reiterate our Buy recommendation and 1,030p TP, and see room for further multiple improvement as the company demonstrates the strength of its model.
HFG delivered 23% LFL operating profit growth in H124 as its UK seafood business continued the recovery that started in H223. We estimate that this accounted for the bulk of the £8.1m improvement in group operating profit (from £38.8m to £46.9m) on a comparable 26-week basis, at actual exchange rates, with UK seafood moving from a low-single-digit (LSD) millions loss in H123 to a LSD millions profit in H124. This was partly offset by a small increase in the (LSD millions) loss posted by Dalco, its vegan/vegetarian business, which continues to suffer from the structural decline of that category. The core meat business, which still accounts for almost 80% of group volume, delivered market share gains across all three regions, due to a combination of its own efforts and its alignment with successful retail partners. Interestingly, HFG cited improving product mix as a driver of revenue growth in UK/Ireland and sees an opportunity to replicate this in other markets. HFG remains on track to start supplying Walmart Canada in early 2027, with an initial £10m of capex now falling into H224. As well as talking positively about the relationship with Walmart, HFG also sounded upbeat on the prospects for further business wins in new markets. Its strong performance in the core meat category in its existing markets is a powerful calling card. HFG has received another £13m of insurance payments for the fire at its former Belgium plant and will continue supplying that market from Holland. Although the strength of Sterling is a headwind, HFG “continues to trade in line with expectations for the full year” (defined as PBT of £74m). We make no changes to our forecasts.
Hilton has delivered a strong first half, helped by the ongoing turnaround in UK Seafood and improving volume trends as food inflation abates. The shares are up 26% YTD but we still see value at this level. We maintain our TP of 1,030p and Buy recommendation.
HFG’s 1H24A results demonstrate a solid performance. The annualization of the recovery in the UK Seafood business lifts adj. EPS c31% on a LFL basis, and the dividend rises +6.7%, ahead of PLe. Incremental progress has been made in automation of a white fish processing line in the Grimsby site, new product launches in Ireland and New Zealand, and contract wins within Greenchain Solutions: a global supply chain software contract with McDonalds, and an automation contract with Coca-Cola Europacific Partners. We hold our forecasts unchanged except a minor increase in the dividend, but roll forward our c16.5x NTM PER valuation six months to 1070p and reiterate our Buy recommendation.
Hilton Food Group+ (HFG, House Stock at 973p) - Another strong step forward
Hilton has had a strong 1H, helped by the ongoing turnaround in UK Seafood and improving volume trends as food inflation recedes. The shares have performed well (+15% YTD), but we believe continue to look good value given the long-term growth potential and improving ROCE. We maintain our TP of 1,030p and Buy recommendation.
Hilton Food Group+ (HFG, House Stock at 919p) - Setting out H1 FY24F expectations
Improving market – this continues the theme of improving volume growth as consumer spending improves with higher wages and moderating food inflation. The news on Finest sales is particularly encouraging. In our view, Hilton continues to look good value on 14.4x FY24E PE and 6.6x EV/EBITDA. We reiterate our Buy rating and 1,030p TP.
In last week’s trading update, Hilton Food Group (HFG) reported that YTD trading has been in line with expectations. Volume and revenue both grew at the group level, but we infer that this growth was modest. Revenue growth was led by the UK & Ireland and Europe, although the latter was held back by a decline in vegetarian/vegan food due to the challenges currently facing that category. In APAC, volume grew, but revenue declined due to lower raw material prices (which are mechanically passed through to customers). Fortunately, HFG’s profits in this market are volume-led. Given the headwinds from lower raw material prices and the strength of Sterling we reduce our FY24E revenue forecast by 4%, from £4,162m to £4,010m. Our FY24E operating profit forecast is unchanged at £103.0m, and our FY24E PBT forecast falls by £1m (1%) as we factor in a higher interest charge with rates remaining relatively high. Our EPS forecast falls by 3.5% as we factor in the tax rate guidance given at the FY24 results. Although the Cranswick (CWK) and HFG share prices have performed similarly this year, up 16% and 17% respectively, the significant earnings upgrades at CWK mean that their valuations have converged (see Figure 1 overleaf). HFG now trades at a 16% discount to CWK on CY25E PE (with HFG on 14.7x and CWK on 17.5x). Although we think that HFG is well past the challenges of 2022, with the profitability of its UK Seafood business continuing to recover, the experience of the last few years has shown CWK to be the more robust and consistent performer. We do not expect HFG’s discount to CWK to narrow further, at least not for now, and consequently downgrade our HFG recommendation to HOLD. Our new TP of 955p is based on 14.8x CY25E PE, a 15% discount to CWK.
Hilton Food Group plc Cranswick plc
Return to form – Trading is in line with expectations and there is confidence in the outlook for 2024. ROCE improved from 14.8% to 18.3% in FY23, largely due to higher profitability. This should bolster confidence in the quality of earnings and the long-term proposition. Management continues to look to expand the business with existing and new partners. We reiterate our Buy rating and 1,030p TP.
Six weeks after posting strong FY results that confirmed delivery of a recovered UK Seafood division and refocused the story on growth, Hilton Foods has confirmed volume growth in all markets, as the impacts of food price changes in the last few years settle down. Deflation in APAC will naturally support volume growth, and the company continues to be on-track for a 2027 launch of its Walmart Canada facility. While nothing changes with this update, we reaffirm that we believe the shares remains cheap for the growth opportunities ahead of the company, and reiterate our Buy recommendation and 1030p target price. Volume growth in all markets: Across UKI, Europe, and APAC, Hilton Foods has seen volume growth. The individual drivers vary, with a strong Easter trading period supporting the UK, and easier meals performing particularly well in Europe. APAC volume growth has moderated on the 7.2% reported in the last fiscal year – no exact figure given in the statement – but this is an expected return to form and both volume and likely profits continue to grow in the region. Deflation in APAC supports volume growth: While there has also been some contribution from a mix-shift in products, volumes are up supported by deflation. This is good news, with volume growth the key driver of profit growth under the company’s cost-plus contracts. While this creates a top-line impact, as always with Hilton Foods, the focus should be on the bottom-line, which we expect to have grown. Walmart Canada remains on-track for 2027: There is no update provided on the scope of the contract – which we believe may grow, and so we see little reason for excitement on this update. We make no changes to estimates with this note. Hilton Foods remains too cheap, in our view. The company has visible growth in the new Canada contract, a wide-open opportunity for further contract wins in both new and existing markets, and at c15x FY24E PER trades at both a) a discount to its closest peer and b) its historic rating despite a largely recovered UK Seafood business. Buy.
Hilton Food Group+ (HFG, House Stock, 940p) - Robust trading continues
Hilton Food Group plc SDX Energy PLC
We recently visited Hilton's campus in Västerås, Sweden. It's two sites provide Sweden's largest retailer, ICA, with a broad range of fresh meat and value added food products. The recently completed second site, has capacity to provide a greater range of value add food products over the medium term
Hilton Foods’ FY results demonstrate the rewards of strong execution, with EPS, PBT (£66m vs cons. £63.5m) slightly ahead of market expectations. The dividend rises 5% above PGe (7.7% YoY) and we model cover returning to c2x by FY26E. Most importantly, exceptionally strong FCF has resulted in a c18.4% yield for FY23E (PG definition) and a sharp leverage reduction from c1.8x to 1.0x Net Debt/ EBITDA, providing firepower for further investment. With operational issues now firmly dealt with, new retailer partnerships, a strong runway for future growth and now lower leverage, we increase our valuation to c16.5x NTM PER, in-line with close peer Cranswick and thus raise our TP to 1030p. Earnings slightly ahead of expectations: Adj. EPS of 52.8p (PGe: 50.7p) and PBT of £66.0m (PGe: £64.3m) shows a strong result and a greater improvement on H1 than we’d forecast. As a result, the company has raised its total dividend to 32p per share (PGe: 30.5p). FCF yield of c18.4% (PG definition) demonstrates strength of core model: We had forecast FCF of £90.6m (vs Bloomberg consensus <£50m) – the company reports FCF of £143.5m under our definition. The core driver of the beat to our number here is a greater than anticipated working capital release (£54.3m vs PGe £11.3m), although there is also a c£9.7m benefit from the Belgian fire insurance payment. Underpinning this strong FCF result is the recovery of both a) non-cash costs and b) c50% of interest expense from retailer partners. Leverage reduction to c1x EBITDA (FY22A: 1.8x): We had forecast a net debt to EBITDA ratio of c1.3x – the company has beaten on this metric largely due to the working capital release as mentioned. We expect this level of inventory to normalize going forward and thus treat this as a one-time cash benefit. We see this level of leverage as encouraging for further investment possibilities – whether organic or inorganic. Growth opportunities abound: While the Walmart Canada contract has slid a few months to the right, encouraging remarks at the presentation on the strength of the relationship, combined with CapEx shifting to the right, imply to us that the facility design may be changing, which we interpret as potentially growing. The facility is now expected to be operational as of FY27E. We see this as indicative of the strength of Hilton Foods’ offering: there remains a large global opportunity for specialist processing and supply chain services companies to intermediate into retailer operations and boost efficiency. The company has recently expanded its role in Albert Heijn’s supply chain, signed a contract with Dunnes in Ireland, and expanded its role with Countdown in New Zealand. Outlook: Current trading is in-line with board expectations. We make no changes to FY24E and FY25E estimates, and continue to forecast adj. PBT of c£79.5m in FY24E. We introduce a PBT estimate of c£85.2m in FY26E. Valuation: With this set of numbers, new management have demonstrated strong execution and a successful recovery in UK Seafood. In our view, the shares remain extremely cheap for the growth runway ahead of the company and the business is primed to grow. Noting close peer CWK currently trades on a c16.5x PER, we lift our valuation in-line with CWK to 16.5x FY24E PER and 1030p.
Hilton’s FY 23 results are comfortably ahead of ours and consensus expectations with adj PBT rising by 19% to £66m. All three geographies contributed to the earnings growth, with UK Seafood the biggest driver. FCF generation of £112m was also very strong and meant that gearing ended the year at 1.0
Hilton Food Group+ (HFG, House Stock, 854p) - On the front foot for growth
Yesterday we visited Hilton Food’s UK seafood sites in Grimsby. As part of the recovery plan the business has invested c.£21m in automation across its two sites and implemented a number of operational changes which have delivered the strong profit recovery in FY 23. We were impressed by the site’s
Confidence returning – We recently had an opportunity to visit Grimsby and see the improvement first hand. The shares have been steadily improving as confidence in delivery improves. Hilton continues to stand out as a unique business model with global potential. As returns improve, so should the rating. We maintain our Buy rating, and 1,030p TP.
Hilton Foods’ trading update confirms FY trading is in-line. We continue to believe this stock is not trading on the right multiple – while we estimate it’s on c15.3x FY23E PER, our expectation of strong in-year cash conversion makes this equivalent to c7.8x P/FCF (12.9% yield). We thus expect a strong reduction in financial leverage. UK Seafood’s FY22A accounts are now public and illustrate a fall in gross margin from c14% to c6%. We expect this will be back to a c13% run-rate with FY23E at c11%. We make no changes to estimates but roll forward our 15x NTM adj. PER valuation to FY24E and thus increase our target price to 940p.
Hilton Foods' FY 23 trading update indicates that trading was in line with expectations. Festive trading was strong with volumes up 3% in December. Its three major regions, UK & Ireland, Europe and APAC, all delivered revenue growth in the year. Pleasingly, the UK Seafood business continued its
Hilton Food Group+ (HFG, House Stock at 756p) - Looking into FY24F with confidence
Return to form – the year has finished well and Hilton is returning to the predictable business model that was previously rewarded with a high rating. The company also added Walmart Canada in the year and continues to ‘explore opportunities in existing and new markets’. We reiterate our Buy rating and 1030p TP.
Hilton Food Group+ (HFG, House Stock, 705p) - Appointment of an independent non-executive director
The standout piece of news from Hilton Foods’ investor day is the incorporation of its IP into a new technology venture; Greenchain Solutions. This early-stage company is currently immaterial but may not be so forever. We set out here that a) there is execution risk, b) it could strengthen the group in the long-term if executed well and c) it will complicate the valuation of Hilton Foods’ shares.
At last week’s Capital Markets Day (CMD) at its Huntingdon facility, HFG set out its expected returns profile from new investments, its medium-term financial targets, its technology and services offer, its ambitions for margin recovery in UK seafood, and its new product development programme. HFG expects to achieve a >20% ROCE on its new investments over the course of a contract, with exceptional returns towards the period end (once the initial equipment has been depreciated) and the potential for strong returns in the (likely) event of contracts being renewed. It sees no reason why new contracts in fish should have a different returns profile than in red meat. The new financial targets appear somewhat modest, but we think that this is due to the difficulty of factoring in periods of particularly strong growth, such as the expansions into Australia (historically) and Canada (prospectively). The CMD looked in detail at HFG’s technology and services capabilities, including its new “Greenchain Solutions” business which offers a fully integrated end-to-end supply chain solution, and which it believes is unique in the market. As well as supporting its core offer, HFG believes that it has “significant opportunities for commercialisation” and has therefore brought together its various strands in a new, standalone business. Importantly for underpinning our current forecasts, HFG has not only guided that it expects its UK seafood business to achieve a (small) profit in FY23, but also that it expects it to return to previous levels of profit by FY25. The latter would deliver two-thirds of the group profit growth that we forecast between FY23E and FY25E.
Hilton Food Group+ (HFG, House Stock at 646p) - Confident trading update, forecasts unchanged
Hilton’s Q3 trading statement indicates that trading has been in-line with expectations. Encouragingly the UK Seafoods delivered a positive contribution to operating profit in the period and should do so for FY 23E. This is better than our prior expectations. Elsewhere, APAC growth continues to be
Hilton Foods’ in-line trading update confirms UK Seafood has returned to profitability in Q3 and we continue to expect the division to post a slight profit for the FY. The company has issued medium-term (5Y) financial targets, including a ROCE >20% and annual EPS growth of c4-6%, for the first time. Combining this with an Investor Day is, in our view, a welcome step-change in transparency to investors. We believe a) there are significant growth opportunities in front of the company and b) at c10.5x NTM EPS the market significantly undervalues the business. We reiterate our Buy recommendation and 930p target price (c15x NTM EPS).
Long-term visibility – We expect this contract to add c.15% to earnings as it matures. The key point is that it is an open-book contract with a new customer and new region. It endorses the Hilton Food model and potential. Although we talk about the business as a multi-protein supplier, in reality it is becoming an integrated food robotics and logistics business.
Hilton Foods is expanding into Canada with a new de-risked partnership with Walmart and, while we model CapEx of c£60m over the next two years, we expect zero initial impact on free cash flow to equity due to the nature of the business model – in our view, the key part of the investment case. Within this note we make some estimates as to the profitability of the new contract, retain our buy recommendation and reiterate our 930p TP.
The wait is over. Hilton has signed a new long term supply agreement with Wal-Mart Canada, for a brand new Food Park facility in Eastern Canada. The new site will supply a substantial proportion of the retailer’s protein requirements including not only beef, pork and lamb but importantly seafood. I
Long-term visibility – We will assess our numbers in due course (the plant opens in FY26), but the important point is that this is an open-book contract with a new customer in a new region. It fully endorses the Hilton model and potential.
Initial Equity Trading Comments - 14 September 2023
HFG PMP NXR TPK IGG VID UPR MSLH PRV TRN
Hilton Food Group+ (HFG, House Stock at 726p) - Long-term supply agreement signed with Walmart-Canada
Initial Equity Trading Comments - 7 September 2023
HFG TXP MPAC NCC CBP
Hilton Foods’ interim results have demonstrated strong execution of the new management team’s recovery plan, adj. PBT rising £5.7m on H2’22 to £26.8m. With the UK Seafood business now substantially recovered, we expect a normalized level of adjusted earnings from H2’23 forwards and move our target price to a c15x NTM PER (from 13x FY3 PER) yielding a 930p target price.
Back on track – the anticipated improvements are coming through, and the company is winning additional business (eg in poultry and the food park in Sweden). There continues to be a compelling opportunity to grow with existing and new customers, given the unique multi-protein proposition.
Hilton Food Group+ (HFG, House Stock at 680p) - Reassuring– retained forecasts imply a strong year-on-year H2 recovery
Hilton Food Group+ (House Stock at 654p) - Further UK fish industry rationalisation
Initial Equity Trading Comments - 7 August 2023
HFG NWF CTG TSCO
Hilton Food Group+ (HFG, House Stock, 669p) - Grimsby fish factories visit
Despite having fallen in recent years, we believe Hilton Foods’ ROIC has reached a trough and will return to the c30% level in time, supported by our observations during our site visit to the Huntingdon facility. We believe operating performance is largely unchanged and that the fall in ROIC is a result of significant capital investment in the business. We reiterate our buy recommendation and target price of 841p.
Hilton Food Group+ (HFG, House Stock, 659p) - Operationally on-track, external headwinds
In this note we preview the upcoming interim results on 7th September and update our forecasts for recent interest rate and FX movements. The recovery of the UK Seafood business remains on track, but the phasing of the rehabilitation is weighted to 2H 23. This means that 1H operating profit will be
After a very difficult FY22, we can already see the improvements coming through. This will enable a refocus on what makes Hilton a highly attractive long-term investment. We reiterate our 1,030p target price and Buy rating.
Road to recovery – After a very difficult FY22, we can already see the improvements coming through. This will enable a refocus on what makes Hilton a highly attractive long-term investment.
Following a reassuringly bland AGM update, we are further encouraged by the “on-track” recovery of Hilton Foods’ UK Seafood division, as well as strong volume performance in its Scandinavian and ANZ markets. We discuss below the impact of a recent tailing off in consumer protein price levels in Hilton’s major markets, and remain buyers of the stock with no changes to estimates or target price of 841p.
Hilton’s AGM trading statement provides another solid update delivering further revenue growth across all regions, and of particular note are the strong performances in Scandinavia and APAC. UK Seafood remains on track to achieve the targeted cost savings and performance improvement which we think
Continuing to recover – Hilton is continuing to recover from a tough FY22, with UK seafood moving towards profitability. The core business strengths of long-term cost-plus contracts should ensure the rating continues to improve.
Hilton Food Group+ (HFG, House Stock, 754p) - Nice and solid trading update
Following a reassuring set of FY results, we continue to believe Hilton Food Group’s UK Seafood division has stabilised and will recover its operating margins over the next two years. While Philip Heffer’s decision to step down as CEO was unexpected, Steve Murrells is a strong replacement for Hilton given his wide-ranging experience in UK retail and meat production. We increase our target price to 841p and retain our Buy recommendation.
Meeting Notes - Apr 05 2023
HFG RS1 LOOK SYNC RWA
Hilton's FY 22 results comprise few surprises with adj. operating profit 3.3% lower at £71.1m, reflecting the impact of cost recovery challenges within in UK Seafood. The company has indicated that this year has started well, and that the robust plans to rehabilitate profitability in UK seafood rem
An improving outlook – 2022 was a tough year for Hilton, with the scale of inflation (particularly in seafood) bringing significant short-term challenges. It is encouraging that these now look under control and the attractions of the business model and the long-term growth potential are intact. There is material potential upside to the rating as this is delivered.
Hilton Food Group’s FY trading update confirms UK Seafood has stabilised, and we continue to expect Hilton Food Group to recover its margins through FY23 and FY24. The rest of the business has performed well and HFG’s share price remains at historic lows. We continue to believe in both earnings growth and PE multiple expansion from this point forward, supported by a) margin recovery in UK Seafood and b) the potential for further growth into Southeast Asia. No change to estimates or TP. Buy.
2022 was a tough year for Hilton, with the scale of inflation (particularly in seafood) bringing significant short-term challenges. It is encouraging that these now look under control and hopefully we can now return to looking at the attractions of the business model and the exciting long-term growth potential. There is material potential upside to the rating if this is delivered.
Hilton Food's FY 22 trading statement indicates that trading has been in line with revised expectations. This reflects good revenue growth across all regions, as well as benefiting from a positive Christmas performance. More importantly, in our view, the company reports positive progress is being m
Hilton Food Group (‘Hilton’) has reported a reassuring trading update for FY22, which follows the most challenging six-nine months since the Group’s IPO in mid-2007. FY22 results are expected to be in line with the early November guidance, and importantly we retain our FY23 forecasts, which imply a healthy bounce-back in profitability. On unchanged FY23 forecasts, Hilton’s equity trades on a very undemanding PER of 9.9x and an EV/EBITDA multiple of just 4.8x. We see a compelling entry point to a top-quality, very well-invested business with a global footprint, and data/logistical capability that can underpin its ambition to be the retailer’s global protein partner of choice. HOUSE STOCK.
Hilton has announced that it has entered into a strategic partnership with Country Foods Pte, which is a Singapore-based food solutions business servicing the HORECA and retail channel in South East Asia. It is the leading protein importer, distributor and processor in Singapore. Country Foods is a subsidiary of SATS which is a leading provider of food and gateway services. The partnership will commence in Q1 2023 and this will allow Singaporeans access to high quality protein products from the Hilton portfolio, including seafood, slow cook meats and Australian beef, pork and lamb products. In addition, Hilton Services will work with Country Foods to help improve Country Foods’ own manufacturing/logistics operations, improving efficiency, executing sustainable packaging solutions and improving product traceability. These are all skills Hilton has built through establishing its own global manufacturing enterprises. It is possible this collaboration may in future lead to joint involvement in establishing new assets in the region. This entry into a new region is done at low risk and low capital cost. The usual template for Hilton, when it secures a new retail customer, is to build a dedicated facility. However, going via an existing operator in the market on this occasion allows it to build sales revenue, but with little upfront financial outlay. In the longer run though, Hilton does have a preference for direct control of its operations, as we saw with the changing structure of the Australian operations which started out as a partnership but which are now wholly owned. At this stage, we leave our financial assumptions unchanged. There is no guarantee of revenue in this partnership, although the high quality of the Hilton protein offer should hopefully attract custom.
Interesting new collaboration • Hilton has announced a long-term strategic collaboration with Country Foods, which is the leading meat importer, distributor and processor in Singapore. • The agreement covers a broad range of products, including seafood, sous-vide and beef, lamb and pork. • The products will be sourced from Hilton’s existing operations, with potential for future manufacturing opportunities. This agreement broadens Hilton’s geographic reach and customer relationships. We do not have visibility on numbers as yet, but assume a relatively modest contribution initially. However, this could be the start of a more comprehensive relationship. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
Issuer Sponsored AG BARR+ (BAG, HOUSE STOCK at 517p) Taking full control of MOMA Foods GOODWIN + (GDWN, House stock at 3195p) – Interims to 31 October 2022 HILTON FOOD GROUP+ (HFG, HOUSE STOCK at 521p) - Country Foods PTE partnership announced - good news.
HFG BAG GDWN
Hilton has announced a long term strategic partnership with Country Foods of Singapore. Country Foods is a market leader in food services and is wholly owned by SATS which is Asia's leading provider of food solutions and gateway services. The collaboration starts in Q1 2023 and will see Hilton prov
Hilton Food Group recently disappointed the market with FY22 warnings, largely reflecting external factors (elevated fish prices and base rates). Whilst so, it is a business full of ambition and has the capability to be the protein provider of choice. Our visit to Auckland and Brisbane, the subject of this note, alongside a Services update, reinforces our view of a great business – the recent share price fall (FY23F EV/EBITDA 4.7x) being an opportunity to invest for long-term capital appreciation. HOUSE STOCK.
Following a second profit warning we reduce our estimates further but do not believe the long-term investment case has changed. On a NTM forward P/E basis, HFG now looks cheaper than at any point since 2013 and we expect both earnings growth and P/E multiple expansion over the next 12 months. We discuss the cost pressures impacting HFG’s seafood businesses within this note.
Hilton has issued a further update re trading for FY22. In late September, with its interim results, it warned that FY22 profits would fall short of market expectations and we reduced our forecasts by 20%. This week’s update flags another shortfall is expected. In September, the main profit issue was around recovering cost inflation, most notably in its multi-customer sites, and in fish in particular, which had seen the largest increase in raw material prices. This remains the reason behind this subsequent warning, with the group reporting that, although it has made some progress in 2H in mitigating or passing through inflation, this has occurred at a slower pace than anticipated. We make a further adjustment to our forecasts, reducing FY22E PBT by £8m to £55m (-13%), all of which we have assumed comes off EBIT. Hence, we have now downgraded our EBIT forecast by £18m, likely virtually eliminating profits from the fish operations (Seachill and Foppen). We previously also increased interest costs by £7m, so the overall change to our FY22E forecasts in the last 8 weeks is £25m or c33%. The group is hopeful that it will continue to make progress over the next few months in recovering this inflation, but it would be sensible to assume that there is some knock-on effect into FY23E too. We reduce profits here by £5m to £67m PBT and make a further, smaller, trim to FY24E too, of £3m to £77m. The scale of these downgrades will undoubtedly dent investor confidence. The rating has already seen a sharp reduction, so we don’t expect it to change considerably again, but we do reduce our TP in line with the reduction in profit forecasts. It falls from 740p to 676p, but with the share price at 550p, our recommendation remains BUY.
Further inflationary pressure Although trading conditions have improved in the UK seafood business, the rate of progress is behind expectations. Elsewhere, the business is performing as expected. Due to the shortfall, we are reducing FY22E PBT by 13% and FY23E by 7%. Although disappointing, this does not change the long-term prospects for Hilton, particularly as the business adds further customers and grows its technology businesses (Foods Connected and Agito). Hilton stated that it is making ‘good progress in ongoing discussions regarding geographic expansion and continues to explore opportunities for growth in our existing markets’. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
Hilton Food Group’s scheduled Autumn trading update has confirmed ongoing challenging trading conditions, reflecting both the tightening of the UK consumer economy and the high levels of inflation evident across much of the Group’s operating base. Whilst Hilton’s pass-through model provides for ‘reduced risk’ for much of the business, a larger multi-customer activity means the Group is not immune from margin pressure in times of stress. We are at such a point in UK Seafood, and despite already taking a cautious view in mid-September, we are lowering our FY22 and FY23 to EPS of 44.4p (-13%) and 54.9p (-5%) respectively. HOUSE STOCK.
Hilton Food's Autumn trading statement indicates that trading remains in line with expectations across all of its single customer sites and most of its multi customer sites. But the pace of cost recovery within its UK Seafood business has lagged expectations which means lower profitably in FY 22e.
Impressive rating increase • Hilton’s focus on stepping up its ESG disclosure has had an impressive result with an increase from 51.2% in FY20 to 56.1% in FY21• This places Hilton at the top of the sector group and compares to the average of 35%• Key areas of improvement included water and supply chain as well as disclosing fully against TCFD and SASB• The company is introducing ESG measures as part of this year’s LTIP awards, with 15% of the total award based on quantitative measures on energy efficiency, packaging recycled content and food waste Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 8-page note
The question we've answered the most over the past few days from family, friends and investors has been "Was it worth it?". Our answer, despite six days of almost continuos travel, is an emphatic Yes! This note provides a high level overview of the key elements of the trip and will be followed up w
World-class operations We recently had the opportunity to visit Hilton’s operations in New Zealand and Australia, which demonstrated the strength of customer partnership and the investment in scale, capabilities and technology. These provide the blueprint for what can be achieved elsewhere. The recent warning may have been unsettling, both for the share price and the rating, however the success of the investment in APAC is not in doubt. Around 80% of Hilton’s revenues are on a cost plus model, providing protection from the current inflationary environment. We expect the remaining businesses (largely seafood) to recover as discussed in our recent note. This note discusses the APAC operations, the quality of earnings and the potential for further business wins. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
Shore Capital attended the Hilton Food Group Investor trip to Australia and New Zealand, which took place between the 26-30th September. Following on from the recent H1 FY22 results, there was, as may be expected, no new financial information disclosed but considerable and encouraging learning about a) a key region for the business, b) the evolving human and fixed capital advances of the Group and c), the growing store of value that is Hilton Services. A more comprehensive note will follow. HOUSE STOCK.
Last Thursday’s reduced guidance from HFG led to a 28% fall in the share price on the day, and a de-rating to only 11x CY23E PE and under 10x CY24E PE on our new forecasts. This compares to a 5-year average forward PE of c.20x. We think that it will take some time to regain this premium rating, but that a partial recovery to 15x CY24E is realistic once the dust settles. This is the basis for our new target price of 1,000p, suggesting over 50% upside. We therefore retain our Buy recommendation despite the surprise of last week’s statement.
Time to reflect A lot of profit warnings are unsurprising and in retrospect were obvious. Hilton’s was definitely in the surprising camp given the largely open-book contracts. Clearly markets are tougher, but the extent was certainly a surprise given the business model. We have taken a few days to think this through in order to reflect on whether the long-term prospects have changed, the business model was less robust than thought and to consider the increase in the borrowing position. Obviously confidence takes a knock and will take some time to recover. In addition, further explanation would be helpful to put it all in perspective. Helpfully, we have a trip to Australia and New Zealand coming up to talk this through in more detail. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 7-page note
Hilton's interim results indicate revenue growth of 20% benefiting from both volume and pricing. Operating profits are up 7% but a c.40bps decline in margins reflects industry wide cost pressures, delaying price increases and start-up costs. Higher financing costs drive a 12% decline in adj. EPS. R
HFG has traded in line with its expectations in FY22 thus far, despite a challenging environment. HFG is working with its retail partners to mitigate the impact of higher costs, but the inevitable price increases are holding back volumes. However, HFG is benefiting from its numerous growth initiatives and from its recent acquisitions. We make no changes to our estimates and retain our Buy recommendation on a stock whose resilience is rightly appreciated by the market in the current climate.
Performing well in tough markets Trading year to date is in line with expectations. The sharp increase in pricing is holding back volumes, but Hilton’s open-book contracts are well positioned to manage. The recent acquisitions (Foppen, Fairfax Meadow and Dalco) are all performing as expected. Hilton continues to explore opportunities to invest in and grow the business, both domestically and in overseas markets, in addition to a number of growth options with its existing customers. We maintain our Buy rating and 1,380p TP. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
Strategic growth initiatives paying off
Hilton Foods FY21 results showed good progress despite lapping tough (COVID boosted) comparatives in FY20. It delivered a 12.7% increase in EBIT although this was largely led by the Australasian business which benefited from the start-up of the New Zealand Food Park and the full buyout of Australia. YoY central costs were also lower which helped, but Europe’s EBIT was broadly flat reflecting the challenging prior year comparatives. Looking to this current year, the profit drivers will be largely inorganic, which is a different model for the group. As securing new business “organically” has been challenging in the pandemic, given travel has been virtually impossible, it has instead been busy in the M&A arena, adding Fairfax Meadow (in the foodservice channel) and Foppen (smoked salmon) to the group as well as buying in the balance of the equity at Dalco (vegetarian products). For the existing businesses, we have assumed modest growth, although over time there is new scope for increased cross-selling given the additions to the protein portfolio. Our FY22E EBIT forecast is unchanged at £87.1m. This shows an 18% uplift. However, interest costs will be higher given the cash outlay for acquisitions (over the £75m placing). This increased interest for acquisitions had been accommodated in our forecasts, but we lift the interest line again today to reflect the recent debt refinance. This adds c£1m to interest costs – the new facility has a 5-year life, usefully extending the maturity, but this came with an increased coupon. Thus FY22E PBT reduces by £1m from £80.8m to £79.8m with EPS of 66.8p. We expect 7% growth in EBIT in FY23E (also unchanged) with PBT reduced by £1m (on interest) to £87.1m, EPS 72.8p. With the changes relatively modest, we do not change our TP (1415p) and retain our BUY recommendation.
HFG has delivered another strong set of results despite the tough Covid-related comps. It has held onto the gains made in Europe in 2020 and grown the business in Australasia strongly. Its recent debt refinancing provides firepower for more investment and (potentially) further acquisitions. The increasing role of technology in HFG’s offering continues to be emphasised. We expect a smooth transition to the new CFO. The shares have bounced strongly after the recent dip, but we continue to see material upside over the medium-term. We retain our BUY recommendation and 1,600p target price (33% upside).
Meeting Notes - Apr 06 2022
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Strong full year and confident outlook Full year adjusted profits increased by 13% to £67.2m, nicely ahead of our forecast of £63m and consensus of £65m. Volumes improved by 7% and revenues increased by 21.6%, helped by acquisitions and pricing. EPS increased by 14% and the dividend was increased by a similar amount. There is a confident outlook statement supported by the cost plus model, which means that Hilton is well placed to navigate surging food costs. We are making a minor (£1m) adjustment to finance charge following a refi, which has given £100m of extra firepower. We expect news of further contract wins in the relatively short term. Remains a core holding. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
Hilton delivered 10.6% adj EPS growth in FY 21a, in line with our expectations. During the year the group made a number of acquisition further strengthening its capabilities to support its ambition of being the "protein partner of choice" across Europe, Asia and North America. Whilst acknowledging
Results in line Hilton Food Group reports FY 21 results in line with expectations. It has delivered an adjusted PBT of £67.2m which compares to our forecast of £66.3m. EPS were 61.3p and the FY dividend 29.7p. This represents a 12.7% increase in EBIT and keeps the group in line with its 11% compound growth over 14 years. The EBIT growth was largely led by a stronger contribution from Australasia and reduced central costs. Europe was largely flat year on year but against tough (COVID boosted) comparatives from FY20. Net (bank) debt closed the year at £85m, but the recent completion of an acquisition takes this to a pro-forma of c.£165m; relative to EBITDA of £139m this is comfortable and expected to reduce in FY22. Extending the protein offer In the year, Hilton extended its range of activities adding new proteins via the full buy out of Dalco (vegetarian lines) and Foppen (salmon). It also moved into the foodservice sector, buying Fairfax Meadow. All of these businesses should contribute more fully this year so the group continues to expect to deliver growth in FY22, despite the more challenging cost environment. It also operates largely on a cost plus basis with its customers. It continues to look for new opportunities with new customers /regions but also to cross sell its growing protein offer. CFO change CFO, Nigel Majewski announced plans to step down after 15 year and will be replaced by Matt Osborne, currently group financial controller.
Hilton Food Group has reported FY21 preliminary results that confirm another year of strong strategic progress, profit growth and a welcome beat to expectations. Growth is underpinned by a 7.0% increase in volumes and a >20% rise in total sales. Looking into FY22, we leave forecasts broadly unchanged with Hilton very well placed to produce another year of robust growth driven by both core activities and recent acquisitions/investments as it delivers on its target to be “the international protein partner of choice”. We see Hilton as a distinctive, high quality growth company. HOUSE STOCK.
As of today, Shore Capital has been confirmed as Joint Broker to Hilton Food Group. In line with company policy, we are withdrawing our BUY recommendation and moving to HOUSE STOCK.
Trading as expected and further tech investment Hilton has stated that performance in 2021 was in line with expectations, with strong growth in Australia and a steady performance in Europe as trading lapped the lockdown period in the prior year. The company has provided a confident outlook statement noting the recent acquisitions (Dalco, Fairfax Meadow, Foppen and Agito), as well as further opportunities to expand organically. Hilton has bought 50% of Agito, which is an automation and software controls business. This adds to the existing tech capability in Foods Connected. The shares are trading on 18x Dec 2022E PE and 8.7x EV/EBITDA, which is good value for a high quality business with a growing tech edge and numerous growth opportunities. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
Solid FY21; Automation JV expands capabilities
Trading in 2021 was in line with expectations, with growth (led by organic growth) continuing despite the tough (Covid-related) comps. HFG has also announced the acquisition of a 50% stake in Agito, an Australian company that provides automation and software controls. This will add to HFG’s technology offering, which is an important source of growth as robotics and automation continue to grow in importance. HFG trades on 17.5x CY22E PE, which we see as undemanding for a company with such positive long-term growth prospects. We reiterate our BUY recommendation and 1,600p target price (43% upside).
The recent acquisitions of Foppen and Fairfax Meadow further expand and diversify HFG’s business and add further opportunities for growth. HFG’s strategic progress over the last few years has transformed it into an international multi-category operator with a broad spread of customers. We think that the market is underestimating the extent of this transformation and its implications for HFG’s future growth prospects. We increase our target price to 1,600p and reiterate our BUY recommendation.
Hilton Food Group’s agreed acquisition of Foppen makes strong strategic sense, in our view, as it widens the range of proteins (smoked speciality salmon), takes the business into new geographies (North America and Asia) and introduces new relationships (Costco, Kroger and Loblaws), whilst also deepening the relationship with an existing key customer (Albert Heijn). Initially modestly earnings enhancing, we expect Foppen (alongside other recent acquisitions) to support Hilton’s medium to long term strategy to be “the global protein partner of choice” for retail customers. We upgrade medium-term forecasts, resulting in the stock trading on a FY22F PER of 17.4x and an EV/EBITDA multiple of 9.2x, material discounts to its 5-year averages which, in our opinion, represents an opportunity to enter a high-quality international growth story at attractive valuations. BUY.
Hilton has agreed to acquire Foppen, a Dutch smoked salmon producer for €90m indicating a historic EV/EBITDA multiple of 9x. Its key customers are major retailers in the US and the Netherlands. The transaction will be part funded by the recent placing which raised c.£75m (before fees). Our updated
Hilton Food has made another portfolio expanding acquisition. Aiming to be the protein partner of choice, it has added smoked salmon to the range, with the agreed acquisition of Foppen. The acquisition price is €90m. Foppen is a Dutch based business (although it also manufactures in Greece) and is known to Hilton via Albert Heijn, one of Foppen’s key retail partners. However, another significant Foppen account is Costco in the USA, plus it has some sales in Asia, so this deal gives Hilton its first inroads into these two new geographic markets. Smoked salmon consumption is currently low in the USA (vs Europe) but growing rapidly. This deal comes hot on the heels of the acquisition of Fairfax Meadow (announced end October, purchase price £23.8m) but also at a time when net debt is higher than typical for HFG, following an expansion of its asset base in Australia/New Zealand. As a result, the announced equity placing today of £75m gross (at 1140p/share) will help fund the two deals and will keep leverage below the 2x threshold. Both deals bring further opportunities for cross-selling. Following Foppen, it can now offer smoked salmon products to its existing customer base, but also look to build on the Costco relationship in the US. Fairfax Meadow offers channel expansion opportunities for the Group’s wider protein range as it operates within the Foodservice sector. We had already reflected the Fairfax Meadow deal in our forecasts, but Foppen generates another small upgrade to FY22E estimates. We add just under £7m to FY22E PBT (prev £74m) but after accounting for the increased equity, the new EPS are 67.7p (2% up on pre 66.5p). Across, these two deals the earning accretion is 4-5%. Maintain Buy.
Acquisition and £75m placing Hilton is acquiring a leading international smoked salmon business, which is based in the Netherlands. In the year to March 2021, Foppen made underlying EBITDA of €10m on sales of €118m. The business is being acquired for an EV of €90m, which is 0.8x sales and 9x EBITDA. The acquisition is being funded by a placing of £75m, which is a c.8% increase in equity. Foppen adds an attractive growth category, develops the relationship with Albert Heijn, brings cross-selling opportunities and adds new customers in the US, which is described as a new strategic market. The transaction is expected to enhance earnings in FY22. This is a really interesting acquisition, which expands Hilton’s product offering and brings new opportunities with existing and new customers and regions. A key phrase in the statement is that the Group is “working with an increasing number of its existing customers on plans to expand Hilton’s products, capabilities and capacity”. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
Hilton Food Group has been busy in recent months, with deal completion for the Dalco JV in early October and the acquisition of Fairfax Meadow announced later in the month. In this short note we put through a model update, finessing our forecasts to reflect such corporate activity, leaving FY21 profit expectations broadly unchanged whilst upgrading FY22 and introducing FY23. We look for a 3-year (FY20 – FY23) EPS CAGR of 7.6%, before ‘new opportunities’. Hilton is a class act in our view, with a broadening array of growth channels across various protein groups, retailers, geographies and fast-growing consultancy activities. Trading on a FY22 PER of 18.3x, an EV/EBITDA multiple of 9.5x, forecast to yield 2.7% with an average FCF yield through FY22-FY23 of 7.5% we continue to see Hilton as a key and core holding in the UK mid-cap consumer arena and reiterate BU
Acquisition of leading foodservice business and TU Hilton is acquiring Fairfax Meadow, which is the leading meat supplier into the UK foodservice segment. The company is paying £23.8m for a business that made £4.4m EBITDA in the year to December 2019 but lost £2.3m in the following year. We assume the business is still below 2019 levels in 2022, so are adding c.£2m to PBT and 3% to earnings. This looks a well-timed acquisition given the likely pace of recovery and at a very attractive price. Management is staying with the business and we expect Hilton to invest c.£5m in capex. The trading statement is as expected, with strong growth in Australia due to Covid restrictions and flat sales in Europe given the strong comps from last year as foodservice recovers. We continue to see Hilton as well positioned to deliver good growth post pandemic. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
Hilton has acquired Fairfax Meadows for £23.8m. FairFax Meadows is a leading supplier of red meat into the UK's food service sector. The acquisition expands Hilton's reach into a relatively unaddressed channel, and the opportunity to leverage its existing protein and product capabilities to drive i
The acquisition of Fairfax Meadow (announced today) for an attractive price is another example of HFG boosting its growth with value-enhancing M&A. Meanwhile, organic growth continued in Q321, despite trading conditions starting to normalise as Covid-related restrictions are eased or removed across many of its major markets. We retain our BUY recommendation and increase our target price to 1,480p, suggesting 28% upside from the current share price.
Hilton Foods delivered a stronger-than-expected 1H, comfortably beating our forecast (by £4m). PBT was £35.8m, which was a 27% increase on 1H20, with EPS also up 25% at 31.9p (FD). The interim dividend was lifted 17% to 8.2p. This half the group started to face the tougher comparatives from 2020, with a COVID boost to demand from Q2 onwards. In volume terms, this was apparent in Europe, with volumes down 1.3%, despite some advance in fish, fresh convenience and plant-based ranges. Revenues moved ahead by 3.7% helped by the pass-through of higher raw material prices. However, profits were stronger than expected (+£4m, +13% HoH) with margins up 30bps to 3.3%, assisted by contributions from sous vide, convenience foods, and the Belgian factory coming on stream. This was the larger outperformer vs our forecast as we had also assumed a tough comparative for profits. The larger boost to revenues came, as anticipated, from Australasia with a full year benefit from the consolidation of the Australian operations and ongoing growth from the Brisbane facility. This flowed through to profits too (+£4.2m). In July, the New Zealand facility opened its doors, although the full product range won’t be available until later in 2021. With the strong beat to 1H, we have reviewed our FY forecasts. We still remain prudent on a number of fronts – a tough volume comparative in Europe in 2H, disruption in Belgium from a recent factory fire, there will not be the same step change from Australasia in 2H (this was already consolidated last 2H), and some growing FX headwinds. We lift FY21E PBT by just over £1m to £66.3m, EPS 59.5p (£65.2m, 59.0p). In FY22E, we lift PBT by £1.9m to £72.1m, EPS 64.7p (63.9p). Using the latest peer multiples, our TP moves down a shade to 1300p (from 1325p), but our recommendation remains BUY.
Aiming to be ‘the Global Protein Partner of Choice’ Hilton produced an excellent result in 1H with adjusted PBT +27.6% to £35.8m. Volumes increased by 10.5%, principally due to a 51.2% increase in Australia. Volumes in Europe were -1.3%, reflecting the elevated period last year, but were +4.3% compared to 2019. Hilton continues to explore expansion opportunities and will also benefit from the acquisition of Dalco, expansion in Belgium and the opening of New Zealand. We are not changing our forecasts at this stage given the potential for further Covid and supply chain disruption, but these results give us confidence that there is upside potential in the full-year numbers. We believe the shares are good value on 18x PE and 8x EV/EBITDA to Dec 2022E. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
Hilton’s interim results indicate another period of strong operational performance with revenues 35% higher and adj EPS rising by 25.1%, comfortably ahead of expectations. New Zealand is now operational and the recent acquisition of the remaining 50% of Dalco should underpin near-term earnings grow
Australia step-change benefit Hilton has reported another half of good growth, delivering PBT of £35.8m vs our forecast of £31.2m, and 1H last year’s £28.6m. This is 27% or £7.7m growth. This result does benefit from the full ownership of the enlarged Australian business, following the transaction to take control last July; profits in this region were up by over £4m and accounted for the bulk of the 35% revenue growth. European good profit uplift European revenues were flatter (+3.8%), benefiting from higher raw material prices (which are passed on). Volumes were lower in this region (-1.3%) but this compares to the COVID-boosted results from 1H20. However, over the 2 year period volumes are up by 4.3% average per annum. Profits were comfortably ahead in Europe, by 12%, reflecting improved margins. FY looks achievable This first half would certainly look to put the company on track to achieve our forecasts, which show FY21E PBT growth of £4m to £65.2m, EPS 59p.
HFG produced further strong growth in H121, with both major regions (Europe and Australasia) contributing positively. EPS grew by 25% and, while growth is likely to moderate in H221, the 17% H1 DPS increase shows confidence in the full year outlook and the long-term prospects of the business. We see further contract wins as likely, helped by HFG’s expanding product and service offering. We retain our BUY recommendation and 1,435p target price (30% upside).
Acquisition of remaining 50% of vegan/vegetarian business Hilton acquired 50% of Dalco in 2019 and had an option to acquire the remaining 50% in 2024E, which has now been accelerated. Dalco is a leading producer of vegan and vegetarian products and is based in the Netherlands. Dalco has performed ahead of expectations since the initial acquisition, helped by additional investment and access to Hilton’s global customers. Taking full ownership should ensure further growth as the category expands. The price was not disclosed, but the cost of the first 50% was c.£5m and the business has grown since. We expect Hilton to increase capacity significantly (>50%) given the growth in the category and the acquisition to be accretive to earnings. The shares are trading on 19x PE and 8x EV/EBITDA to December 2022E, which we consider good value given the growth potential. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
Strong start to the year Hilton has issued a trading update covering nearly five months. Trading is described as strong, with good progress in Europe and Australia. Hilton continues to explore opportunities to invest and grow the business, both domestically and in overseas markets, and is exploring a number of growth options with existing customers. The shares are trading on a PE of 20x and EV/EBITDA of 8.6x to December 2022E. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
Good momentum continues
HFG has made a strong start to FY21, with growth continuing to be driven by a combination of previous business wins and the ongoing Covid boost to in-home food consumption. HFG trades on 20x FY22E PE, which we see as undemanding for a company with such positive long-term growth prospects. We retain our Buy recommendation and 1,435p target price.
24 - 28 May 2021
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Meeting Notes - May 13 2021
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Hilton's diversification into fish and plant-based proteins in recent years, coupled with its investments in tech-enabled logistics and supply chain management, means it is an increasingly attractive strategic partner for retailers. The combination of broader protein portfolio and enhanced capabili
Hilton Foods reported better than expected numbers for FY20, reflecting a strong close to the year and the benefit of COVID lockdowns helping boost protein consumption in the home. To a large extent we had factored this in, but we had also matched it with an increase in central costs which turned out to be too aggressive. The year also included a 53rd week, worth around £1.3m on profit. Looking out to FY21, the challenge is predicting how the consumer will react as lockdowns start to ease and out of home dining can resume. In Australia, which has been open for several months now, Hilton remarked the return to hospitality outlets had been slow. However, until we have a clearer picture we believe it is best to remain prudent, and we have assumed little underlying growth in FY21E vs FY20. There are some factors that will provide growth yoy – the roll out in Belgium will gather pace through 2021, and, in the final quarter of the year, we will see the New Zealand “food park” open. The group will also have a full year of Australia under its full ownership although this will make a bigger difference to revenue than profit, as the profit line was already benefiting since taking “operational control” in 2018. Netting out a number of minor adjustments results in little overall change in our PBT forecasts (+£0.4m in both FY21E and FY22E). For FY21E, our PBT forecast shows c.7% growth yoy which would be very respectable against the strong year just delivered. For FY22E, our forecast PBT growth of 7.5% will be fuelled by the first full year from New Zealand. With no significant number changes, our TP is unchanged at 1325p and our recommendation remains BUY.
HFG PAG QQ/ RWA
Results better than expected Results were comfortably ahead of expectations, with PBT +20% to £59.7m (52-week basis) vs our forecast of £55.5m, and EPS +18.0%. The dividend was increased by 19%. The main driver for the outperformance was a stronger result in Australia, with volumes there growing 108%, and Europe by 8.5%. There was strong cash generation, and net debt of £122m was lower than our forecast of £144m. We are not changing our numbers at this stage given the currency headwinds, but we see potential for upgrades through the year. Hilton continues to look at new opportunities with both existing and potential customers. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
Hilton delivered 20% adj EPS growth in FY 2020, with the FY DPS rising by 21.5%. The growth was underpinned by its strategic investment in Australia as well as benefiting from increased demand across Europe due to a shift in consumption trends brought about by the pandemic. We believe that Hilton r
Hilton Food Group’s FY2020 trading update (released 14th January) confirmed strong trading momentum across all activities, benefiting from the shift of food volumes to retail customers post Covid. With trading ahead of expectations, we upgrade our FY2020 CPTP estimate by 5% and FY2021 by 3%. Post upgrades, Hilton equity is trading on a FY2021F PER of 16.9x (3 yr avg. 22.6x) and an EV/EBITDA multiple of 9.3x (3 yr avg. 11.1x). We view such multiples, as an attractive entry point to a high-quality business with excellent short, medium and long-term growth prospects, BUY.
An upbeat FY20 trading update from Hilton Food Group was not entirely a surprise. Having delivered strong 1H20 results (PBT was up 15%), thanks to increased “at-home” protein consumption in many of its markets, we were expecting some continuation of this in 2H. The group will have had to absorb some increase in costs to keep its facilities safe and operational, but COVID has generally assisted this year’s result. We upgrade FY20E by 5% to £56m at the PBT level, from £53.5m, with EPS now 52.7p (prev 50.4p). Year-on-year PBT growth will now be c12%. As we start FY21, the UK remains in full lockdown and there are ongoing COVID-led restrictions in several of the group’s other markets. Hence, we should expect some volume benefit to continue, albeit perhaps not at the same level as FY20. We are starting to see the roll-out of vaccines, but it might be some time before people feel comfortable venturing away from the relative safety of the home environment and back into busy restaurants or pubs to dine. Hence, we lift our FY21E PBT forecast by a more modest 3% to £64.8m from £62.3m, EPS is 59.3p. However, FY21 will be a good strong profit growth year anyway, with a full contribution from the wholly-owned Australian operations, Belgium will contribute for a full year and also the opening of New Zealand (meat and fish facility) is expected in Q3. From a cash perspective, net debt will have increased in FY20, reflecting the outlay for the Australian JV buy-in and New Zealand build. On our net debt forecast of £138m, this represents c 1.4x EBITDA. This, however, should be the peak debt year and, without any further new developments, we see positive cashflows reducing the debt quickly.
Positive trading update Hilton has stated that performance in 2020 was ahead of expectations, helped by increased volume growth and own expansion. The business has benefited from the shift to home eating and an increase in cooking from scratch. The company has provided a confident outlook statement, noting the expansions in New Zealand and Belgium as well as further opportunities to expand. We expect to increase our forecasts by 5% for 2020 and 3% for 2021, which leaves room for further upside. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
Hilton's FY 2020 trading statement indicates that positive volume growth has continued across all major markets, resulting in trading being ahead of expectations. Accordingly, we increase our adj EPS forecasts by 5% for FY20e and by 1-3% across the forecast period. The outlook remains positive, wit
Hilton Food’s most recent trading update (21st May 2020) revealed further robust trading through the COVID-19 crisis/lockdown, with the Group benefiting from its considerable exposure to retail channels across its markets. A subsequent call with senior management and the Shore Capital sales team confirmed the myriad of growth channels Hilton has cultivated over the past five years, opportunities that underpin our three-year (FY2019A-FY2022F) EPS CAGR forecast of 10.4%. In this note, we highlight the key takeaways from our call, incorporate the recently announced Belgian investment into our forecasts and introduce maiden FY2022 expectations. BUY.
Today, we upgrade our target price on Hilton Food Group. Last month, it reported FY19 results that showed continued good progress and updated the market on current trading. For FY19, profits benefited from a strong advance in Australia and also the UK as it increases its share of Tesco volume. From a Covid-19 perspective, the group is seeing increased demand for protein across several markets as the lockdowns imposed have led to an increase in home food consumption. How long this benefit will continue is difficult to say, but we may see some easing of restrictions for restaurant, cafes etc. from July. Given the unpredictable nature, we have not assumed any Covid-19 benefit in our numbers for the time being; we are also mindful that operating costs have risen in order to keep facilities operational and staff safe. Other adjustments have been made to reflect the delay in the opening of the New Zealand food park (one of the costs of Covid-19), but also positive news that the group will start to service Ahold Delhaize stores in Belgium from September. For FY20E and FY21E, our numbers are largely unchanged with these factors balancing out. On the balance sheet, net debt increased to £88.2m, reflecting the investment made in Australia and the UK. This year, the group will take full control of the Australian operation so debt will rise again, but then we anticipate it reducing from FY21E onwards. The nature of Hilton’s business gives good visibility on future profit growth as its new projects come on stream. With largely fixed margins too, this makes it a relative ‘safe haven’ in these uncertain times. We revisit our TP and this increases to 1325p. We retain our BUY recommendation.
Double-digit growth The group reports PBT of £49.7m vs our forecast of £47.2m. This is an 8.8% increase on FY18 (+10.2% on constant currency). EPS was up a similar amount at 46p (+8.7%) and the full-year dividend was held at 21.4p (this is below our forecast, but in a world of cancelled dividends understandable). The main drivers of the results was a 10% increase in revenue to just over £1.8bn, with a strong performance from the UK where the group now packs 100% of Tesco red meat and the new facility in Brisbane which was ramping up volume in 2019. Debt rises, but still comfortable Group net debt was £88.2m (pre-IFRS 16) which was a c £60m increase yoy, reflecting the cash flow for capex on the new expansion projects mentioned above. This is lower vs our expectations and represents 1.1x EBITDA. It will rise this year on a planned JV buyout (c£50m), but this can be comfortably accommodated. Encouraging outlook The outlook says the business is trading in line with the Board’s expectations. COVID-19 is creating some uncertainties in the business, but it has coped well so far. FY20E projected growth is underpinned by growth projects put in place 1-2 years ago – i.e. the build-up of Brisbane and the new site in New Zealand, but today the group also announces a new business win in Belgium (with Delhaize) which will commence in September 2020.
FY19 ahead of group expectations Hilton Food Group has issued a trading update in lieu of its full FY19 results which are delayed following the FCA’s request. The statement indicates that FY19 performance was slightly ahead of group expectations (our forecast was £47.2m, EPS 44.8p), with growth driven by the UK and Australia. Dalco the vegetarian/vegan business also operated well. FY20 growth built in Encouragingly, the group’s outlook remains positive. Its model is almost entirely retailer-focused and food stores largely remain open in all markets. Its plants are all operational and it is establishing flexible models to help cope with any COVID 19 issues (around supply chain/labour). Previously announced expansions in New Zealand, Australia and Central Europe underpin FY20 growth prospects, alongside the expansion into newer proteins of fish and plant based foods. B/Sheet sound The group has a debt position of £87m (c1.1x EBITDA) reflecting recent capex projects, but the larger ones are now complete. This year the group will complete the Australia JV buyout so debt will increase again (within planned levels), but the group has undrawn facilities of £116m and strong cashflow outside of these specific events. We make no changes to forecasts at this point. FY20E PBT £55m, EPS 51.1p.
Hilton Food Group has issued an update for the period from 15th July to date that once again confirms positive momentum with trading in line with the Board’s expectations. Growth has been underpinned by additional volumes with Tesco, which leads to 3% upgrades to our medium-term (FY2020 and FY2021) forecasts. Hilton Foods is a class act in the mid-cap consumer arena that we forecast to deliver a three-year(FY2018A-FY2021F) EPS CAGR of >10% with good visibility from an expanding portfolio of proteins. With ambitions to continue to grow across the UK and in overseas markets, and the balance sheet and cash flow to support such ambitions, we reiterate our BUY recommendation.
Hilton Food Group has issued a trading update for the 28 weeks to 14 July 2019 which discloses trading has “been in line with the Board’s expectations”, benefitting from additional volumes across its retail partners. We leave forecasts unchanged, looking for FY2019F CPTP of £47.4m, EPS of 43.3p. Whilst we forecast modest growth in FY2019F of c4%, we confidently anticipate a return to double digit growth in FY2020F and FY2021F as workstreams across a range of geographies contribute. Hilton Foods is a high-quality business in our view, one that more than merits its premium 21.7x FY2019 PER, and an EV/EBITDA multiple of 10.3x. With good growth visibility and a balance sheet and cash flows to support future growth ambitions we reiterate our BUY recommendation.
Hilton Food Group Flash : Taking Control of Australia JV
Hilton Food Group Flash : FY17 pre-close: reassuring on all fronts
HFG’s acquisition of Seachill is an exciting move and marks a strategic step-change as it is HFG’s first significant acquisition and expands HFG’s protein offer into fish. We consider Seachill to be a high quality business, with low volatility of demand leading to stable cash flows, similar qualities to HFG’s core meat protein business. Seachill enhances HFG’s near-term growth profile at relatively modest additional risk. Longer-term, Seachill has good expansion potential. The transaction multiple (FY17 7.6x EV/EBITDA) looks sensible. We estimate the deal will boost FY19 adj PBT forecasts by 13%. We still view HFG’s valuation as attractive (FY18 10x EV/EBITDA).
Following shareholders’ approval of the Seachill acquisition at a meeting on 6th November, completion of the deal on November 7th, and today’s positive trading update for the period July 17th to date showing that the core business is performing in line with expectations, we increase our FY17-FY19 PBT forecasts by +2%, +17%, and +13% respectively. We think the acquisition of the Seachill fish packing/processing business materially advances HFG’s strategic agenda and significantly enhances the near-term growth profile at relatively modest additional risk, thereby adding to HFG’s very recent string of international deals in Portugal, Australia and New Zealand which represent more medium-term growth opportunities. In our view, HFG’s valuation remains attractive given the compelling long-term growth prospects on offer, despite the positive share price response (c+10%) to the proposed deal since it was announced on October 18th . We will reflect more fully on the attractions and financial merits of the Seachill acquisition in due course. We raise our TP to 995p and retain BUY.
HFG announces it is to proceed with plans to expand its retail meat packing capabilities into New Zealand. We think that the stockmarket will react favourably to this good news as; (1) NZ represents the 15th country that HFG will undertake business globally, a continuation of the well-established pattern of entirely organic expansion via moves into new geographical areas; (2) HFG’s development of further business with Woolworths demonstrates that the relationship commenced via a joint venture in January 2013, and subsequently significantly extended, has been highly successful, with HFG now a trusted partner, thereby likely further bolstering the jv’s already important contribution to HFG’s overall profitability; and (3) this new move into NZ helps provide further visibility on HFG’s medium-term (i.e. FY20 and beyond) profit growth profile as the company is already set for a protracted period of profit growth in light of other recent corporate developments (i.e. the Sonae deal in the short term and the recent deals with Woolworths Australia and Tesco Central Europe set to deliver over the medium term). Our estimates remain unchanged. We increase our TP to 870p (from 825p). BUY.
The considered evolution of HFG’s strategy and corporate development (i.e. adding new geographies, proteins and categories to leverage its pronounced end-to-end supply chain capabilities), coupled with favourable underlying fundamentals/structural dynamics (i.e. HFG has emerged as a strong leader in an increasingly consolidated meat packing industry, characterised by more collaborative long-term supplier agreements), should contribute to HFG generating above average long-term EPS growth. HFG deserves a premium multiple, not least for its increasingly assured growth outlook, strong balance sheet and an impressive track record. And yet, we believe the earnings accretion potential arising from the new contracts and HFG’s overall prospects are still not reflected in the share price. Maintain BUY. There will be a 14 page company note out shortly.
H1FY17 results demonstrate that HFG continues to make good financial (PBT increased +10.4% to £18.4m) and operational progress, whilst simultaneously executing well against its comprehensive plan to extend its strategic pipeline (e.g. HFG’s 50/50 j/v with the leading Portuguese retailer, Modelo Continente Hipermercados, and HFG’s new Woolworths-dedicated meat processing facility in Australia). While there are challenges in the macroeconomic and retail grocery market landscape, we remain confident that the combination of; (1) HFG’s market leading positions; (2) sound financial position underpinned by growing net cash balances; and (3) strong execution skills will sustain growth in 2017 and beyond. We reiterate our BUY and TP of 825p.
HFG has signed a long term supply agreement with Tesco Central Europe to produce fresh food (e.g. sandwiches, pizza, ready meals and soups). We are confident that HFG can leverage its significant capabilities (e.g. supply-chain management of fresh food ingredients, production, packaging and distribution) into these adjacent fresh food categories. Following on from an initial move beyond meat in late 2016 to supply fresh pizzas to ICA stores in Sweden, followed swiftly by pizza assembly undertaken for Tesco Central Europe, today’s markedly more comprehensive product diversification move represents a significant new dimension to HFG’s strategic growth opportunities. This, in turn, should have important positive longterm implications for sentiment, forecasts and valuation. We reiterate our BUY.
Today’s H1FY18 pre-close trading update is “in line with the Board’s expectations”. This positive update largely mirrors that of the recent AGM trading statement on May 24, reflecting the continuation of the established overall positive trading patterns, further boosted by the net positive impact of beneficial translational FX effects (recalling that HFG generated c74% of its FY16 volumes outside the UK) offsetting the effect of start-up costs in Portugal and Australia. We note, in particular, the encouraging tone about how HFG is executing on its scheduled development plans to deliver its two significant geographic expansionary moves – both announced in 2016– in Portugal and Australia. We maintain our BUY.
Today’s rock solid AGM trading update is supportive of our view that FY17 is set to deliver another good year of underlying financial and operational progress, building on FY16’s significant profit growth performance. Longer-term progress also looks assured given the encouraging news from HFG’s recent geographic expansionary moves in Australia and Portugal. To reflect HFG’s continued momentum on multiple levels and our view that HFG warrants, at least, a FY17 10x EV/EBITDA multiple, we raise our Target Price to 825p (from 805p), and maintain our BUY.
HFG.L has risen +17% YTD vs. the FTSE All Share Index up +3.5%. This has come on the back of the shares rising c.+20% (vs the market +12.5%) in 2016, and c.+150% over five years. HFG's EPS has risen c.+36% in five years, thus the biggest driver behind the share price rise has been a re-rating. As HFG has grown, more investors have been attracted by HFG’s impressive profit, cash generation and dividend track record. The shares now trade on c.20x FY17E PE, nearly double the PE that HFG.L used to trade on five years ago. The biggest question we get from the investment community is whether the business can keep growing given it is now such a significant operator in its field. This note takes a look, post HFG’s recent strong FY16 results, at how it intends to grow in the future through its stated strategic growth pillars; (1) Consolidating its position in key existing markets through market share gain/broadening the product offer; (2) Entering new geographic territories with new/existing retailer customers. We reiterate BUY.
FY16 PBT of £33.2m has come in towards the top end of the £32.2m-£33.5m range for consensus forecasts which had only very recently been modestly nudged up post the FY16 pre-close trading statement on January 12th. However, we believe the stockmarket will particularly welcome the significantly better than expected cash generation driving a robust net cash position of £32.3m (well ahead of our expectations of £22m) and a full year dividend growth of +17.1% to 17.1p (substantially ahead of our forecasted 15.6p). The medium-term outlook remains positive, with HFG expecting further growth aided by continued focus on NPD and range extensions, whilst HFG now has visibility on strong profit growth with the new Portuguese j/v coming through in the short term and the planned Australian factory longer term. In brief, these strong FY16 results demonstrate HFG is in excellent shape operationally, strategically and financially with the firepower to simultaneously fund additional investment options and maintain an ongoing, attractive progressive dividend policy. We maintain our BUY.
Today’s slightly better-than-expected FY16 pre-close trading statement prompts us to raise our FY16 PBT estimate by c.1%, reflecting the combination of (1) growth in several of HFG’s key markets, (2) strong overall operating performance, and (3) favourable fx translational benefits (recalling that 62% of FY15 sales were ex-UK). To reflect the positive profit contribution impact of the Portuguese j/v agreement signed on January 4th, the j/v income line is boosted by €1.5m (c.£1.3m) and €2.5m (c.£2.2m) in FY17 and FY18 respectively, representing upgrades of c.4% and c.6%. Once operating at full capacity utilisation, the j/v could well add €3m (c.£2.6m) in FY19. To reflect (1) our increased FY16-FY18 forecasts, (2) current peer EV/EBITDA valuation multiples, and (3) our view that HFG now deserves to trade at a premium to the peer group in view of its impressively strong financial track record (i.e. FY06-FY16 since IPO) for organic and investment-led profitable growth, combined with an array of emerging, highly promising initiatives (see our note “Start of a new chapter of growth” published on October 4th) to expand the scale and scope of HFG’s core business, we raise our TP to 805p (previously 755p). Maintain BUY.
Consistent with a highly-successful, critical strand of HFG’s stated growth strategy (i.e. entering new territories with new customers), HFG has signed a 50/50 j/v with Sonae, Portugal’s leading food retailer, to redevelop and operate Sonae’s existing sourcing/packing facilities to supply c.750 Sonae group stores with a range of packaged meats. We view today’s development, following an initial c.6 month co-operation period, as significant and encouraging on multiple levels; (1) the Portuguese facility is similar in size to HFG’s current third largest plant near Melbourne, Australia in terms of annual tonnage of c.50,000; (2) management states that it expects the redeveloped facility, post an initial €22m investment by the j/v, to be earnings enhancing in FY17 [we estimate that HFG’s share of profits could be as much as €3m in FY19 i.e. c.8% of our forecasted FY16 PBT]; (3) the Portuguese j/v is similar in structure to that of the proven j/v operational arrangement that HFG has had in Australia since 2013, thereby giving us comfort that HFG can capture its fair share of the financial rewards in a risk-managed fashion; and (4) today’s move to a formal j/v has come well within the 6-9 month period guided to when the co-operation agreement was first announced in July 2016, suggesting to us that HFG’s working relationship with Sonae has been highly successful so far. In short, we think the stockmarket will welcome HFG allocating its surplus cash to develop its core business with such a leading retail client, following on so soon from December’s announcement that HFG will invest A$115m to expand its packing capability in Australia. We maintain BUY.
HFG has announced plans to expand its packing capability in Australia, by constructing (at an expected investment cost of A$115m financed through bank facilities) a new meat processing facility in Queensland, in order to supply Woolworths, the leading grocery retailer in Australia. This is a highly significant development as the new Queensland plant, alongside HFG’s two existing dedicated retail packed meat facilities in Melbourne and Bunbury (both operated as a joint venture with Woolworths) should mean that HFG supplies the bulk of Woolworth’s c.1,000 stores with their red meat needs over time. In short, this development should underpin growth at HFG for many years to come from 2020 onwards, which, in turn, should result in a higher and more stable earnings stream over time, supporting a continued rerating of HFG’s valuation multiple, in our view. We reiterate our BUY.
Today’s trading update (18th July 2016 to date) will reassure the stock market, likely further comforted by HFG’s frequent financial calendar trading updates given the current backdrop of quite heightened economic and political uncertainty. Management comments that HFG “continues to trade in line with the Board’s expectations”. This, in turn, reflects a continuation of the established overall positive trading patterns seen in the H1FY16 (January 4th to July 17th) results published on September 13th. We reiterate our BUY.
We think, over the medium-term, investors will look back at FY2016 as the start of a new distinctive chapter of growth for HFG, predicated on the refinement of the already potent HFG investment thesis. We use the recent strong H1FY16 results as a good opportunity to reflect on the long-term implications of a number of initiatives and developments, over and beyond the well-understood and wellexecuted focus on progressively and profitably expanding the scale and scope of HFG’s core business. Our positive thesis on the stock is predicated mainly on the company’s under-appreciated long-term, value-added growth strategy, which will result in a higher and more stable earnings stream over time, supporting a continued rerating of HFG such that it should sit at the top end of the peer range, in our view. Having reflected further on H1FY16 results, and updated our relative valuation exercise, we increase our TP to 755p (715p), giving 22% upside
H1FY16’s PBT of £16.7m (+26.7% y/y) is ahead of our and consensus expectations of £16m. Our FY16 forecasts are unchanged for now whilst we note the pleasing 12.2% interim dividend increase to 4.6p. These interims impress on three key levels; (1) HFG’s underlying trading performance remains strong despite the context of a dynamic and challenging grocery retailing backdrop, combined with macro uncertainty and attendant currency volatility; (2) the first real evidence of the important financial benefit of HFG’s significant capacity investment in the UK and expansion in Australia; and (3) the strong momentum running throughout the business. We reiterate our BUY.
Today’s H1 pre-close trading update is “in line with the Board’s expectations”. This reflects a continuation of the established overall positive trading patterns and individual country performances seen at the AGM trading update on May 25. In light of sterling continuing to depreciate against all of HFG’s key trading currencies (e.g. 62% of HFG’s FY15 revenues were generated outside the UK), we upgrade our FY16 and FY17 EPS forecasts by 4%, reflecting positive translational FX effects. The real news is HFG extending its capabilities, for the first-time-ever, into an adjacent fresh food category: pizza. The initial move is low-cost, risk-managed and non-material. Longer-term, in our view, this product diversification move could well represent a significant new dimension to HFG’s strategic growth opportunities, which in turn could have important positive implications for sentiment, forecasts and valuation. Reiterate our BUY.
Post-Brexit, HFG offers defensive and high predictability of growth as it sells quality basic food products, for which there will always be continuing demand, to successful blue chip multiple retailers in the developed world. In FY15, 62% of HFG’s turnover was earned in countries outside the UK with a wide geographical spread. HFG has FX translational exposure (so depreciation of sterling should be good for reported profits) but little transactional FX exposure, as HFG’s international operations all have natural hedges in place as, broadly, they buy raw materials, source services/employees, sell products and arrange funding in local currencies.
HFG has announced an initial 6-9 month co-operation agreement with Sonae’s Modelo Continente Hipermercados (MC), Portugal’s leading food retailer, with the expectation of the formation of a JV in due course. This important initiative; (1) demonstrates HFG’s further delivery against a key stated element of its growth strategy, namely exploring growth opportunities in overseas markets; (2) adds further international diversification to HFG at a time of heightened, Brexit-induced investor aversion for UK economically-sensitive stocks; and (3) reinforces the long-term visibility of the HFG investment case. We also note management commentary that HFG “continue to look for further opportunities for geographic expansion”, which we welcome. We should next hear from HFG on July 21 with a trading update shortly after the end of its H1 FY16 period (i.e. the 28 weeks ending 17th July). We reiterate our BUY ahead of that update.
HFG's share price has fallen 12% since reaching an all-time high of 610p on May 27th. The vast bulk of the fall has however occurred since June 2nd following the publication of the FTSE UK Index Series Annual Review June 2016. HFG will therefore drop out of the FTSE SmallCap Index on June 20th for liquidity reasons. On fundamental and valuation grounds, we see this 12% fall as unwarranted and therefore believe the current weakness in HFG's share price creates an attractive buying opportunity, particularly given HFG's unjustified valuation discrepancy (c.30% discount based on 2017 EV/EBITDA) relative to that of its closest peers. We reiterate our Buy and Target Price of 715p.
Today’s trading update is in line with HFG Board’s expectations. We therefore leave our FY16 estimates unchanged, but we highlight the continuation of the established positive patterns. We also note the positive tone of management commentary which bodes well for the rest of FY16 and beyond, with the tone underpinned by HFG’s increasingly potent competitive position, a clear, consistent and demonstrable strategy for continued profit growth, sound financial position, and good operating cash flow generation. We retain our Buy and Target Price of 715p.
Recent FY15 results represented a continuation of HFG’s impressively strong financial track record of growth and profitability over the past 10 years, demonstrating again that HFG is a high quality and well-managed business. HFG remains well-placed strategically, financially and operationally to deliver further growth from its market-leading positions. HFG’s strong and growing market share is, in turn, driven by industry-leading innovation/NPD and supported by a well-invested, efficient operating model. Having reflected further on the FY15 results, subsequent industry newsflow, a recent visit to the recently-expanded Tesco-dedicated Huntingdon facility, and updated our relative valuation exercise, we increase our TP to 715p (from 625p), giving c.30% upside potential.
Strong growth in underlying profitability was the standout feature of FY15, along with prodigious cashflow generation. FY15 dividend increased by 9.8% to 14.6p (vs. our forecast of 14.3p). The business appears to continue to demonstrate strong underlying positive momentum. We raise our FY16 PBT forecasts to £30.8m (vs. £30.7m). The outlook statement for medium-term profit growth is confident. We therefore reiterate our Buy and TP of 625p, giving 26% upside.
Today's better-than-expected FY15 pre-close trading statement prompts us to raise our FY15 PBT estimate by 5%, split: +3% underlying operating profit beat and +2% for the 53rd week. The underlying +3% profit beat was driven by a combination of (1) good trading at Christmas, and (2) strong overall operating performance. We reiterate our Buy rating and increase our Target Price to 625p (from 570p) giving 12% upside potential from current share price levels.
For the 15 week period from 13th July to date HFG's management notes in today's strong trading update that, overall, trading has been slightly above the Board's expectations, which gives us the scope to increase FY15 estimates by 1%. This encouraging trading update underpins our maintained Buy recommendation and TP of 570p. Our conviction is reinforced further when we consider that FY15 forecasts reflect some sizeable investment-related start-up costs, with HFG's true profit potential only really flowing through in FY16 when we expect 20%+ earnings growth.
The interim results indicate that the UK expansion is now firmly on track, and the Australian joint venture has now opened a major new facility. 2016 should see 20%+ earnings growth on the back of these investments. Currently there are no further major investment plans announced but we note there are significant opportunities.
The interim results indicate that the UK expansion is now firmly on track, and the Australian joint venture has now opened a major new facility. 2016 should see 20%+ earnings growth on the back of these investments. Currently there are no further major announced investment plans but we note there are significant opportunities.
Volume driven growth offset by currency.
Trading in Q2 remains in line with expectations with volume growth in UK, Ireland and Holland. New plant for Australian joint venture now equipped and being tested ahead of start up as planned in Q3.
The pre-close update confirms that H2 trading has been in line with expectations, as well as the progress on the infrastructure investment being on track. With the Huntingdon facility expected to be commissioning at the end of Q1 15 and the new Victoria facility on track to open in Q3 15 the group looks well placed for significant sales and earnings growth over 2015-16.
