Interactive Investor

ii view: Hilton Food details lower profit but beefs up dividend

Eyeing geographic expansion and offering an attractive dividend yield. We assess prospects for this FTSE 250 company.

7th September 2023 15:55

by Keith Bowman from interactive investor

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First-half results to 16 July

  • Revenue up 5% to £2.1 billion
  • Adjusted pre-tax profit down 22% to £27 million
  • Interim dividend up 27% to 9p per share
  • Net debt up 2% from early-January to £216.5 million

Chief executive Steve Murrells said:

"I am pleased, in my first set of results as Hilton Food's CEO, to show delivery of a robust performance against a challenging economic backdrop. Our core meat business has continued to perform strongly and we are pleased with the continued recovery in seafood.”

ii round-up:

Food processing and packing company Hilton Food Group (LSE:HFG) today detailed lower profits but raised its dividend by more than a quarter given a strong performance at its significant Asian business and a continued recovery for its seafood operation.

Adjusted pre-tax profit for the six months to mid-July fell by just over a fifth to £27 million, hurt by higher borrowing costs. The interim dividend was hiked 27% to 9p per share. 

Shares in the FTSE 250 company rose by almost 1% in UK trading having come into this latest news up by just over a fifth year-to-date. That compares to a gain of a tenth for Mr Kipling and Ambrosia brand owner Premier Foods (LSE:PFD) and a loss of almost 4% for the FTSE 250 index.

Hilton processes and packages foods from meat and fish to vegetarian meals using automated facilities including robotics across 13 markets in Europe and Asia Pacific.

Total group sales climbed 5% to £2.1 billion, aided by a 0.5% improvement in volumes and higher product prices needed to cover higher underlying food prices. 

Sales at its Asian division rose 5% to £868 million, aided by its partnership with Australia’s Woolworths supermarket chain. European sales rose 11% to £554 million, helped by robust trading across its Scandinavian and Central European markets. UK and Irish revenues rose 1% to £701 million.

Accompanying management outlook comments pointed to expected medium-term growth given both previous acquisitions and potential wider geographic expansion with existing and new customers. 

ii view:

Headquartered in Huntington, Hilton employs over 7,000 people at processing plants run to supply partners such as supermarkets or in joint ventures in local markets. Previous acquisitions have included Dalco, a Dutch vegetarian and vegan company and smoked salmon business Foppen. 

For investors, higher borrowing costs have impacted the business, driving interest cover down to 2.8 times from six times last year. Food input prices also remain elevated given elevated energy costs across arenas such as farming and fishing. A full recovery for its underperforming UK seafood business has yet to be reached, while execution risks such as a previous fire at its Belgium plant remain a constant. 

On the upside, diversity in both its product offering and geographical region exist, and progress for its environmental strategy including the use of reduced plastic packaging for its customers is ongoing. Its new chief executive brings fresh enthusiasm, while food arguably provides some defensiveness as consumers must eat no matter what the economic backdrop. 

For now, and despite room for some caution, an historic and forecast dividend yield of over 4% should keep investors happy. 

Positives: 

  • Geographical diversity
  • Attractive dividend yield (not guaranteed)

Negatives:

  • Uncertain economic outlook
  • Elevated costs

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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