Cranswick plc (LSE:CWK) continues to post impressive revenue growth and its prospects have never been brighter. I’ve written a brief commentary on the key things you’d need to believe in order to be long CWK.
First, a short introduction to the company is in order. Cranswick plc manufactures and supplies food products to grocery retailers, food service sector, and other food producers in the United Kingdom, Continental Europe, and internationally. Started in 1970, it operates in United Kingdom and is recently valued at UK£1.72B.
There’s no doubt CWK is delivery on its promises, with a soaring annual revenue growth of 17.63% , and a bottom line growth of 12.28%. Over the past five years, sales has increased by 8.66%, concurrent with larger capital expenditure, which most recently reached UK£58.70M. An expected return on investment of 13.50% over the next three years is a result of CWK’s reinvestment into the business, according to the consensus of broker analysts covering the stock. Net income is expected to increase to UK£73.90M in the upcoming year, and over the next five years, earnings are predicted to rise at an annual rate of 5.30% on average. These figures illustrate CWK’s strong track record of producing profit to its investors, with an efficient approach to reinvesting into the business, and a buoyant future compared to peers in the sector.
Limiting your downside risk is an important part of investing, and financial health is a key determinant on whether CWK is a risky investment or not. With zero-debt on its balance sheet, CWK doesn’t have to worry about maintaining a high level of cash to meet debt obligations and paying near-term interest costs. These constraints can be a burden for growing companies as it prevents them from reinvesting cash from operations back into the business to fuel further growth. The value of financial flexibility may outweigh the benefit of lower cost of capital for CWK, which debt funding usually provides compared to issuing new equity. However, the company has plenty of headroom for borrowing, and the expected growth, to have debt funding as an option in the future. CWK has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities, as well as long-term commitments. CWK has managed its cash well at a current level of UK£20.60M. However, more than a fifth of its total assets are physical assets and inventory, which means that in the worst case scenario, such as a downturn or bankruptcy, a significant portion of assets will be hard to liquidate and redistribute back to investors.
CWK currently trades at UK£33.74 per share. With 51.09 million shares, that’s a UK£1.72B market cap – which is too high for a company that has a 5-year cumulative average growth rate (CAGR) of 9.39% (source: analyst consensus). With an upcoming 2018 free cash flow figure of UK£33.47M, the target price for CWK is UK£21.79. This means the stock is currently trading at a massive premium. Although, comparing CWK’s current share price to its peers based on its industry and earnings level, it’s trading at a fair value, with a PE ratio of 24.48x vs. the industry average of 24.42x.
CWK’s investment thesis is a positive one. The stock is appealing because of its strong fundamentals – financial health, future outlook and track record. However, at its current share price, right now may not be the best time to invest. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I’ve taken my data from.