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.
