Tag: CWK

  • Portfolio

    Chopping and changing

    I haven't paid a great deal of attention to the structure of the portfolio recently, which is a bit of a shame as things have been bobbling up and down all over the place. This afternoon, I finally took some time to sit down, update the (increasingly gargantuan) spreadsheet and figure out what, if anything, needs changing. I've made a few transactions today, then, which I'll cover briefly before leaving with an explanation of the composition of the portfolio as it stands. That's not to say I'm happy with everything in there - I'm not, particularly, which might be indicative of an investor who started only when everything was cheap and is now finding the going a little more tough.

    The sells

    I've sold Barratt, because I don't think they're worth a premium to their assets in their current state. The whole market shift on Barratt has been rather dramatic when you think about it; only a couple of years ago they were valued at about half of their tangible asset value - an effective statement that the market thought their assets were worth half of what they were on balance sheet at, loosely. There were lots of questions around the impairment of land and the representation of that on the balance sheet, for instance. (more…)

  • Cranswick (CWK)

    Questions of quality

    I like Cranswick as a business. Much like Howden Joinery, it was one I bought back when I started the portfolio because it sort of fitted what I knew I was supposed to be looking for, but didn't understand that well why. In hindsight, and having looked at quite a few more companies since then, it still strikes me as a company of significantly above average quality. (As a (sort of) economist, I can't help but add that the previous sentence is home to all sorts of selection bias; I am a value investor, so I am probably more likely than most to be looking at poorer-quality companies and not the ingenious new startups.) Self-chiding aside, quality is all well and good, but it's the price/quality that we really care about. I guess that's what stuff like the P/E hopes to give you an indicator of - price vs. quality, in that ratio how much money it's making. In those simple terms, what we're really trying to do as investors is refine that 'E' so we get a picture of future cashflows far more intuitively and powerfully than just looking at last year's net profit number.

    The good

    As I said, it's a 'quality' company. To put numbers or intuition to it, it consistently earns returns above its cost of capital, as a big company, without overleveraging (either on debt or operating leases) and with reasonable consistency. It's dipped since the recession, as could be anticipated, but still earns returns figures upwards of 20%, having capitalised operating leases. This, to me, is probably the simplest definition of quality. Where it comes from is another, more complex question, but by the simplest yardstick a company able to consistently grow and keep returning more than is required to fund that growth is a sound one. That seems obvious, but that point is sometimes in considerable doubt. I spend a good deal of time trying to decipher whether a company's returns are just depressed for a idiosyncratic or cyclical reason, or whether it's simply in terminal decline. Cranswick does not worry me with the same questions. (more…)


    The third set

    The third in a series where I refresh my opinions on the portfolio's current holdings:


    Post 1

    Post 2

    Getting closer! I was tempted to do the final 5 in this post, but given the doubtless length it'd then get up to, and the fact that the last two are the ones I'm most uncertain about, I thought I'd stick with 3.

    N Brown (BWNG)

    Leaving N Brown to this post allows me to comment on their results, released yesterday, which were met with positivity by the market. The shares closed up over 10% on what look, at first glance, rather uninspiring figures. Two things to say about that, I suppose - firstly, uninspiring compared to what? Boring, relatively flat results will be good for the share price if everyone was expecting a poor set of figures! Secondly, I wonder if much of the positivity comes from the bit the media seemed to have seized on - something in the outlook. The headlines, anyway: (more…)

  • Friday Reading

    A Round of Results

    Four this week, which I'll briefly run over - 3 are in my portfolio, and one isn't but is a familiar name!


    Cranswick's first period of the year provided no surprises, with sales up 7.4%. There's no direct reference to margins, but they do note that:

    There were further modest increases in pig prices during the period, albeit they remain below the peak of last summer.  The impact has been absorbed through increased volumes and continued operating efficiencies.

    Which makes it sound as if, given no big jumps again in pig prices, margins should be at least stable at the levels seen last year. Debt is down through the group's cash generation, there's still a lot of headroom, and the company finalised the appointment of Adam Couch to CEO given the stepping down of the incumbent, Bernard Hoggarth. Couch comes from inside the company, with Hoggarth staying on part time, which probably says a lot about the business. No large movement in share price means I'll keep holding on to them. Though they're at the expensive end of my portfolio, they're hardly expensive relative to the wider market given their long and consistent history of profitability.


    Creston reported a drop in revenues, more or less expected since the trend was reported not long ago by management. Frankly, there's not a great deal of meat or the statement or news - caution as usual given the environment. The slight dip in share price doesn't really change the bigger picture, which is that the company is cheap relative to earnings but has some question marks over a) how and whether profits will flow through to shareholders and b) how well they'll continue to hold up. The position I have is the smallest in my portfolio by a pretty wide margin. (more…)

  • Cranswick (CWK)

    Fat Revenues, Thinner Margins

    Since I went for a bacon-related title in my last full post on Cranswick - almost a year ago - I thought I'd stick with the same sort of theme today. The joys of being a blogger! Since it's been almost a year, though, you may have guessed the drive behind this post; yes, it's that time again, with Cranswick today reporting their figures for the full year. A reasonable headline would be to say they were loosely positive. Forecasts were down anyway, and Cranswick's half year performance was particularly strained by big cost increases. There's been a reversal in that trend, though Cranswick still end up reporting operating profits marginally down against a revenue increase of 8%. Put those two together - op. profits down against revenue increases - and you arrive at the title of my post, and my biggest concern about the business.

    More on that later, though. Firstly the positives, the most obvious of which being that they managed yet another year of net profit growth, continuing their rather good record. Two significant exceptional items muddy the underlying picture. Firstly, an impairment of goodwill detracting from profits; though notably a non cash item; and secondly, the disposal of a small sector of the group for a significant gain on stated book value. These represent -£5m and +£8m respectively, netting off with slightly reduced finance costs to result in a final improvement in profit. Aside from the profit impact, the disposal of the Deeside operation puts some ground under the book value of the company - they have, after all, managed to sell a loss making business with a book value of £6.2m (including some related financial contracts) for £14.5m in cash.

    The relentless profit and cash generation has meant Cranswick have continued to pay down debt, which now sits at £21.7m, of basically no concern given the group's size. Indeed, it probably raises more questions of efficiency - would it make sense for the group to take on more debt to expand or buy back shares? Perhaps. Either way, it's the nice end of the spectrum to be on, instead of the end where investors need to ask whether the group could limp by if something bad were to happen. At least some of the cash is also being used up on expanding the group's asset base - necessary given the constant rise in revenues - but it's a sign of health that Cranswick have the cash available to simultaneously invest to maintain growth, pay out healthy dividends to shareholders, and pay down their debt. (more…)

  • Food & Valuation

    Picking the Winner

    Having decided that I like Dairy Crest (see here and here), then, the far more interesting question is whether it has a place in my portfolio. A difficult answer to question when one's adding extra money - after all, do I pick this or one of the other thousands of choices - but even more difficult when the portfolio already sits fully invested. Not only do I now have to answer whether it offers better returns than the other potentials, but whether it offers significantly better returns than the stock it is replacing; enough to outweigh the trading costs incurred (bid/ask, commissions, stamp duty) and, if we're being diligent, whether the stock in question leaves your portfolio too heavily tilted towards a particular sector or correlated in some other way. While I'm not hedging risks with longs and shorts, I am keeping at least a lazy eye on the overall composition of the portfolio. Particularly when looking at stocks in the value spectrum, it'd be extremely easy to construct a portfolio entirely of, say, recruitment stocks. That, though, is hardly a measure of your individual stock picking ability - as your portfolio's performance will by and large be determined by how well recruiters do over the next few years. Since I'm not a specialist in any particular area, it makes sense to diversify and attempt to build a broad-based portfolio!

    Preamble out of the way, then, I have a rather easy way of ensuring my portfolio doesn't become too tilted towards food, because the stock I'll be comparing Dairy Crest to will be in the same rough sector - Cranswick. I say rough because they are several differences; for a start, Cranswick enjoy far higher margins, suggesting their (mainly meat) products aren't nearly as commoditised as the milk that Dairy Crest grab most of their revenues from. Cranswick have also enjoyed far more growth than Dairy Crest have; Cranswick's revenues sit at around 3 times what they were ten years ago, while Dairy Crest's are more like 10% higher. While there are obviously complicating factors - acquisitions/disposals always confuse the story - the cold hard fact remains that Cranswick have proven themselves to be ahead of the market for a long period of time. Dairy Crest, though operating in a true cutthroat industry, simply don't have that track record.