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What could next week’s results mean for these tasty shares?

Image: Cranswick. Fair use.

Among those reporting to the market next week are Hull-based meat supplier Cranswick (LSE: CWK) and upmarket cafe company Patisserie Holdings (LSE: CAKE). Based on recent news and events, what can investors expect from Tuesday’s updates?

Rocketing exports

Back in July, Cranswick reported a “positive start to the current financial year,” with revenue for the three months to the end of June 11% up on the same period last year. Due to increased demand and output, the company also revealed that export volumes to Far Eastern markets had jumped 60%. More recently, Cranswick announced the acquisition of leading Northern Irish pork processing business Dunbia Ballymena in a cash deal. According to the company, this will start enhancing earnings from the 2018 financial year and give the business greater control over its supply chain. Given these developments, I struggle to see how next Tuesday’s half-year figures will be anything less than encouraging.

As an investment, Cranswick ticks a lot of boxes. Cash rich with a largely unblemished history of raising revenues and profits, the food producer has also managed to generate consistently good returns on capital over the years. Trading on a forecast price-to-earnings (P/E) ratios of 19  for 2017, and 18 for 2018, it’s shares aren’t the cheapest out there. Nevertheless, thanks to its consistent earnings stream and acquisition-friendly strategy, I think this one company is one to buy and hold for years.

Rising star

In its last update in May, CEO Luke Johnson was positively buzzing about Patisserie’s performance. And why not? With gross revenue rising by 14.4% to £50m and gross profits up by 16.1% to £39.2m, the future looked very positive indeed. In addition to highlighting the company’s pipeline for new stores, Johnson also commented that he was looking forward “to another period of strong growth in the second half of the year.

Since then, of course, we’ve had the EU referendum. Although Birmingham-based Patisserie may have been the victim of some indiscriminate selling, it’s also probable that some investors have dumped the stock fearing that Brexit-related uncertainty would dissuade some from visiting its stores. After all, when looking for ways to cut spending, few would argue that posh cakes represent essential purchases. 

Quite how June’s momentous vote and our forthcoming EU exit have impacted trading remains to be seen. Given recent figures suggesting that consumer spending has remained resilient, there’s the possibility (but never a guarantee) that the company may not report a slowdown at all. If this turns out to be the case, I can imagine its share price moving sharply higher and past the 300p mark fairly quickly. It may not hit the highs of 450p reached in January but a decent rise from its current value of 270p seems reasonable.

On a forecast P/E of 17 for 2017, I think shares in Patisserie are reasonably valued, particularly given its track record. The company has a decent history of growing revenue and earnings over the past five years. It’s also managed to generate strong returns on capital and high operating margins relative to the rest of the market. And while its dividend yield remains negligible, annual payouts are forecast to rise by 65% this year and 16% the following year – as good a sign as any that a business is performing well.

Worth buying a slice now? It’s a tentative ‘yes’ from me.

Assuming Brexit isn't quite the nightmare some are expecting, I think the future looks rosy for both Patisserie Holdings and Cranswick. Both companies appear to offer decent growth at fair prices. 

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended Patisserie Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.