ii view: Hilton Foods has recipe for success

This packaging company is catering for stay-at-home and cook consumers under Covid. Buy, sell or hold?

Trading update from 4 Jan to 21 May

ii round-up:

UK and overseas food packaging group Hilton Foods (LSE:HFG) today reported trading which matched its own expectations following a strong start to the year.  

Early year pandemic lockdowns across its European markets helped boost demand as consumers continued to cook and eat from home given hospitality outlets were shut down. Red meat demand in the UK grew strongly compared to the largely pre-pandemic trading of the period a year earlier. Volumes for its seafood business were also up as consumers switched from counter to pre-packaged items. 

Hilton shares were little changed in UK trading, having gained by around a third since pandemic lows in March 2020. Shares for fellow foods group Cranswick (LSE:CWK) are up by a similar amount, while sucralose maker Tate & Lyle (LSE:TATE) is up by just over 50%. 

Despite ongoing Covid-related costs, growing sous vide or vacuum-packed volumes are allowing Hilton soon to move current its operation to Huntington, reducing costs and giving it expanded capacity.  

Turnover across its Scandinavian markets has grown, while strong growth has been seen at its Central European operations, driven by demand for red meat and fresh food. Central European customers include Tesco outlets for the region. 

Sales at Dalco, its plant-based product joint venture, are slightly ahead of a strong comparative last year, and management continues to see significant opportunities in the roll-out of plant-based products.

Hilton summarised its financial position as ‘strong’ with management continuing to explore opportunities in which to invest and to grow both domestically and in overseas markets.

First-half results are scheduled for 16 September.

ii view:

Established in the UK to package meat, each of Hilton's packing plants is operated on a dedicated basis for its customers. It recently set up a new facility in Belgium to supply Delhaize and continued to further diversify its product offering in the plant-based, seafood and convenience categories. During its last full financial year, the UK generated its biggest segment of sales at around 40%, while Central Europe followed at close to 30% and the Netherlands and Sweden each made up a further near 10%. 

For investors, despite many precautions, the risk of a Covid-19 outbreak at one of its plants cannot be forgotten. Potential for some dip in demand as Covid restrictions ease and customers venture back out to hospitality ventures also warrants consideration. That said and looking longer term, potential for more international and product category expansion persists. And a historic and estimated dividend yield of over 2% is still not derisory in the context of the current ultra-low interest rate environment.  

Positives: 

• Geographical diversity
• Opening new plants

Negatives:

• Possible hit to operations from Covid outbreak
• Total dividend stayed unchanged between 2018 and 2019

The average rating of stock market analysts:

Buy