Blackfriar: Cranswick bringing home the bacon for canny investors

Shares in the pork producer have taken on a life of their own, soaring by more than 27 per cent in little over two months.

Their 938p close yesterday was just shy of the recent high for the company, which started off about 40 years ago as a co-operative of Yorkshire farmers.

When set against a fiercely competitive grocery market, as consumers and retailers demand the best price, it might seem an incongruous response from the stock market.

Add that to the soaring price of pigs, pushed to record highs by surging commodity prices and tough new European regulations, and the share price surge looks even odder.

One major protein producer, poultry giant and Northern Foods owner Ranjit Boparan, last year described it as a “perfect storm”.

But if the market is tough for Cranswick, it’s even tougher for its peers.

Dutch-owned competitor Vion is quitting the UK altogether, closing its Hall’s of Broxburn factory in Scotland and selling its pork business to management.

That allowed Cranswick to pick up a deal worth more than £30m to become the main fresh pork supplier to Leeds-based supermarket chain Asda. Supermarkets clearly value supplier stability.

And while the European sow stall ban puts more upward pressure on prices, it also hits the cheap competition.

Sow stalls, narrow metal enclosures used in intensive pig farming have been banned in Britain since 1999, and the EU ruling brings other states into line. Numis Securities analyst Charles Pick reckons UK and EU herds will fall by five to 10 per cent.

Add that to Cranswick’s boast that pork is the “alternative white meat”, and still cheaper than beef and lamb, you can see the attractions in the stock.

These factors have prompted upgrades from N+1 Singer, which recently moved from hold to buy, with a new 1,061p target price.

But perhaps more important to Blackfriar than any of these external factors is the fact that Cranswick remains resolutely in charge of its own destiny.

Amid the deepest recession for decades, it has invested more than £100m in its business over the past five years.

The deal to buy a former fish auction house in Hull was typical of the company’s opportunistic approach, picking up a state-of-the-art plant to supply a meaty contract with Asda.

Its deal to supply ‘fifth quarter’ offal and off-cuts to the Far East taps into another lucrative market, and Cranswick is currently shipping about 25 containers per week.

Meanwhile, net debt was down to just £32.2m at the last count.

It may be an intensely tough meat market, but if comes down to last man standing, Blackfriar wouldn’t bet against Cranswick.

For all the clamour about increasing diversity in retail banking, the Office of Fair Trading’s figures show a market that’s still dominated by the big boys.

The OFT said “further significant changes” are needed to reduce their dominance in the £9bn personal current account (PCA) market.

But the regulator decided not to refer the issue to the Competition Commission, saying imminent changes in the pipeline should improve competition.

The OFT probed current accounts in 2008, but said since then, big banks’ dominance has increased. The big four banks – Lloyds, RBS, Barclays and HSBC’s – PCA share rose to 77 per cent in 2010, largely down to the Lloyds/HBOS merger, and is now about 74 per cent.

Lloyds now accounts for almost twice the PCA share of the second largest provider, RBS.

In fairness, these figures do not include the Lloyds Verde deal, which has not yet completed. Lloyds is being forced to sell 630 branches, known as Project Verde, to the Co-operative.

Lloyds says the Co-op will then have almost seven per cent of the PCA market.

Nor do they include RBS’s enforced sale of 316 branches and 1.7m retail customers. Equivalent to two per cent of the retail banking market, it is looking for a new buyer after its deal with Santander fell through.

But these deals aside, why do the big four still hold such a monopoly on basic banking in the UK?

Blackfriar doubts much of it is down to trust or affinity with lenders – after all, each of the big four has had its time in the stocks, from Libor-rigging to money laundering to frozen accounts to multi-billion pound bailouts.

New entrants such as Metro Bank and M&S Bank have also barely made a dent.

Part of it must be customers’ apathy and their reluctance to endure the hassle and risk of transferring multiple direct debits.

This is set to get easier, with a new automated switching service later this year.

But without a Competition Commission inquiry it’s hard to see major changes in the established order.

Blackfriar suspects that when it comes to personal banking, for many it’s a case of “better the devil you know”.