Food prices are soaring, and that’s bad news for a lot of companies operating in the sector. But there must be some good value British stocks out there, which can come through these times profitably, mustn’t there?
Peel Hunt seems to think so. The London investment bank has identified some intriguing investment possibilities, while pointing out that high prices are not going to be just an overnight problem. Getting production, infrastructure and supply chains back to normal is going to take some time.
Top British shares?
Peel Hunt identifies AG Barr, highlighting an advantage that had never struck me. It appears that “about 70% of all soft drinks are sold on promotion and AG Barr is no different, so there is space for the company to improve price without increasing RRP for customers.“
So prices can creep up, but not as visibly as for goods already sold at, or near, recommended retail prices. Hopefully this should help to keep sales resilient, especially with the bulk coming through grocery and impulse channels.
Premier Foods has always struck me as being among the best diversified British stocks in terms of brands, with Mr Kipling, Oxo, Homepride and many more.t
That spread of products lies behind the attraction for Peel Hunt, who says “Premier has pricing power through its focus on brands, has the leading market position across all of its categories and has a track record of managing inflation.“
The analysis also concludes that Premier is less exposed to labour cost pressures than some other British stocks, using highly automated manufacturing processes.
Vegetable oil inflation
MP Evans is another that I would not have thought of. The company produces sustainable palm oil from plantations in Indonesia. But so what? Well, it’s all down to the rising price of vegetable oils on the back of hikes in hydrocarbon production and the war in Ukraine.
Can you guess which two countries are (or, at least, were) the world’s biggest sunflower oil producers? Yes, Ukraine and Russia. By far.
By contrast, Peel Hunt points out that “the rise in the price of palm oil dwarfs the additional cost of inputs and labour.“
The market seems to have noticed that, and the MP Evans share price has climbed 40% in the past 12 months, mostly since February.
What about the far end of the retail chain, deliveries of takeaway food? Peel Hunt tips Domino’s Pizza as a likely winner. Takeaway food does seem to do well during consumer crunch periods, as a substitute for the significantly higher expense of eating out.
High margins can provide room for flexibility too, with the firm pointing out that “Domino’s and its franchisees share a gross margin of 85%, implying a small purchasing cost base.”
Investors don’t seem to have gone for this one, with the Domino’s share price lagging behind the FTSE 100 over the past 12 months.
I have not done enough research on any of these British shares to consider buying just yet. But this analysis has given me food for thought.