Hilton Food Group has reported a return to growth in its UK meat-packing operations as the impact of ‘Horsegate’ on the market has eased and economic conditions have improved.
The company, which packs meat for Tesco but was not implicated in the horsemeat scandal itself, said in an update on its third-quarter performance this morning that business in the UK had picked up recently and returned to more normal trading patterns after a “challenging” first half of the year.
“After a challenging [first-half] trading environment, with the tough general economic climate exacerbated by ‘Horsegate’, the group reports that [third-quarter] trading has been in line with expectations,” analysts at Investec said in a note, while Panmure Gordon described Hilton’s reference to its improved UK performance as “the most notable comment” in today’s statement.
Overall, trading across the European markets that Hilton operates in had been in line with expectations, the company said, with volumes growing in Denmark following the addition of a new production line earlier this year; a strong performance in the Netherlands thanks to the launch of new product lines; “steady” business in Sweden; and Central Europe delivering as expected.
The exception to this was Ireland, where “business has not yet resumed growth, reflecting the wider economic conditions”.
However, its overall financial position remained strong, Hilton said, “and there has been no significant change to the balance sheet position since the half year”.
Hilton entered into a joint venture with Woolworths in Australia earlier this year, and said the venture was making “good progress”. “The development of the Bunbury facility is proceeding in line with our plans, with both pork and lamb now relaunched in new packaging formats and beef products to follow this month. In Victoria, the first steps have been taken in preparing for the construction of the new facility in Melbourne.”
Analyst reaction
Investec said its forecasts for the company as well as its price target of 450p remained the same in light of today’s statement.
Meanwhile, Panmure Gordon described the company’s interim statement as painting a “typically reassuring picture” and reiterated its ‘buy’ recommendation and price target of 480p. It added: “While earnings growth is likely to be muted this year, this should not detract from the significant strategic progress Hilton has made with its move into Australia, which we expect will become a material profit centre for the group. We expect further growth opportunities for Hilton and continue with our ‘buy’ recommendation.”
Shore Capital said it was encouraged by the pick-up in UK performance, “which suggests Tesco is beginning to recover from the H1 volume declines driven by the horsemeat adulteration”. It added the company remained in a strong financial position, and also left its forecasts unchanged, reiterating its ‘hold’ recommendation.
Numis Securities also highlighted the pick-up in UK trade as encouraging: “The horsemeat issue impacted here hardest in Q1, so there has probably been a lessening effect due to this in Q3, although Tesco’s improvement actions in the UK may have also had a bearing.”
The Australian joint venture was developing positively, Numis said, adding: “We remain of the view that the JV ‘down under’ will prove transformational on a five-year basis, with some good early signs here”. Numis’s target price for Hilton is 485p.
Hilton shares were trading unchanged at 431p this morning.
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