Blackfriar: A tale of two companies that have come back fighting

The toughest market conditions on record have dealt the two companies a severe blow.

So it is a remarkable turnaround to hear this week that both firms have dusted themselves off, orders are ahead and they are preparing to hunker down and get through a grim two or three years for the UK economy.

Thirsk-based Severfield’s shares shot up yesterday on the news of strong order books.

Some critics thought the group was resting on its Olympic laurels – Severfield provided the steel for the main stadium – but the company has proved them wrong with the news that its £230m order book contains virtually no Olympic work. You can see how tough the market is when you look at the demise this month of two of Severfield’s rivals.

Both Barrett Steel Buildings in Bradford and Robinson Construction in Derby have gone to the wall over the past few weeks.

While the UK market remains tough, Severfield has looked abroad and is now performing strongly in India, where its order book of £61m is up from £40m at the end of August.

Analysts welcomed the update, with the shares rising nearly 16 per cent to 179.25p last night.

“The strong order book gives us confidence regarding profitable trading in 2012,” said Steve Medlicott at Altium Securities.

“More importantly, the year on year uplift in India will generate more than half our forecast profit growth next year.

“A shift towards London commercial and power markets next year should result in stronger margins although this is likely to be second half biased.”

He concluded: “Good underlying value. Buy.”

Severfield pleased the market with the news that it has negotiated new banking facilities with effect from November 11.

The new facilities, with Yorkshire Bank and Royal Bank of Scotland, include a £50m revolving credit facility for five years, to November 2016.

This is an increase on the £40m, three-year facility which was scheduled to expire in March 2013.

“We have been slightly nervous regarding the group’s banking position so the new deal is a positive development,” said Mr Medlicott.

Over in Hull, upmarket sausages to sandwiches company Cranswick said its current trading is “much improved” after a 22 per cent fall in profits for the six months to September 30.

The company said greater efficiencies at its abattoirs and an increase in exports to the Far East and the US have helped to offset rising pig prices.

After the Hull-based fresh pork facility gained United States Department of Agriculture approval in April 2011, ribs are now being exported to the US.

Sales of cheaper cuts, such as heads, tails and feet, to the Far East have also grown strongly and as China and the far East grows in affluence, slightly more expensive cuts such as hocks and shin meat are also becoming more popular.

Like Severfield, Cranswick has looked at the difficult UK market and put plans in place to grow market share abroad.

Both have world-leading skills and rather than navel-gaze for the next few difficult years they are getting out there and exporting British goods and skills.

Cranswick is now “cautiously optimistic” about the future as recent trading improves and meat-eaters are increasingly turning to pork as it’s viewed as cheaper and healthier than other meats.

The group, which supplies pig products for the Jamie Oliver brand as well as Sainsbury’s and Tesco, said it expects its busiest ever festive season, helped by new products and record demand for premium bacon products.

But the New Year will be tough with consumers cutting their average spend at supermarkets and reducing the amount of food they waste.

Analyst Clive Black at Shore Capital said: “Over the last five years Cranswick has invested more than £100m in its facilities and this investment provides capacity for growth and generally industry leading productivity metrics.

“Such factors are never more important that when markets are tough.

“It is important to point out that Cranswick is now focusing on harvesting the potential from this investment and it is doing so from the context of a balance sheet that is very strong and is expected to strengthen in forthcoming years.”

Steel and bacon may be worlds apart, but one thing both Cranswick and Severfield have in common is that despite the horrendous market conditions they have continued to invest.

Perhaps this is the biggest lesson the two companies can offer.

Thanks to this investment both will be ready to forge ahead when we do finally emerge from this grim economic period.