A tasty prospect in meat processing

There's one firm that is a welcome exception in the "notoriously cyclical" business of pig-meat processing, says Investors Chronicle.

Cranswick (CWK, 641p) has added value to its product lines at a time when consumers are increasingly buying "more upmarket" products.

Being at the top end of the market (the sausages in Sainsbury's Taste the Difference' range are one of Cranswick's products) gives it more pricing power than its peers. Its shares have delivered 285% over the past five years (equivalent to 31% every year), compared to a total of just 56% for the food-processing industry as a whole.

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Cranswick generated no free cash last year after investing heavily to expand its operations. The money having been spent, however, the firm is now in a perfect position to reap its reward. Sales of food products were up 12% in the final three months of last year, led by pork and sandwiches, which were up 20% and 25% respectively.

In addition, the overcapacity situation in its other main business pig feed appears to be improving. Earnings estimates are expected to rise a modest 6% from 45.4p in 2006 to 49.2p per share in 2007, according to estimates from broker Investec Securities.

But its free cash flow yield is projected to increase much more dramatically, from virtually nothing to a prospective yield of 6.5%. This puts Cranswick on a free cash flow multiple of just 15.8 times and a forward p/e multiple of just 13 times, which is hardly excessive. In addition, it yields 2.4%. Overall, it is a "tasty prospect". Buy.