Invest in Hilton Foods: a tasty UK food supplier

Sometimes the best opportunities aren’t in the most glamorous sectors but in less prominent, yet still important, industries. Take food supply-chain management. It may not be a sector you think about every day, but without it, supermarkets would not be able to source, store and sell the wide range of foods that are available, nor would their customers be able to store them until they are needed. One British company that is making a name for itself in this area is Hilton Food Group (LSE: HFG).

Hilton Foods’ business involves sourcing, processing and packaging food that is then sold in many of the UK’s major supermarkets, including Tesco, Morrisons and Waitrose. While its core focus is meat, Hilton has expanded its range of activities over the past few years, using acquisitions to grow its seafood operations, for instance. It has also bolstered its presence in the growing area of vegetarian food, as well as in ready meals.

Like most of the food industry, Hilton was hit by the surge in inflation, which squeezed margins, with the result that profits nearly halved in 2022, leading to a sharp fall in its share price around the same time. However, the good news is that the stock bounced back in 2023 and has continued to grow strongly. Part of this is due to the fall in inflation, but profitability has also been boosted by a successful effort by the company to clamp down on costs.

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Hilton Foods plans to go global

In the longer run, Hilton Foods has ambitious international expansion plans. It already operates in several European countries, including Denmark, Holland, Sweden, Portugal, Ireland and Greece, as well as Australia and New Zealand. However, it is now starting to move into North America. Last September it signed an agreement with Walmart, whereby Hilton will assist the supply chain of the supermarket giant’s Canadian arm from 2027. This is a big deal, as Walmart controls just under 10% of the Canadian market; it could also lead to deals elsewhere.

Hilton Foods’ expansion plans (including acquisitions) have already resulted in sales more than doubling between 2018 and 2023. At the same time, the group makes a return on capital employed, a key gauge of profitability, of about 13%, showing that it is deploying its resources in an efficient manner. This makes a valuation of 14.5 times 2025 earnings seem more than reasonable. The stock also comes with a solid dividend of 3.8%.

Not only are Hilton Foods’ fundamentals and prospects both strong, but it also seems to have caught the imagination of investors from a technical perspective – the shares have nearly doubled in two years. The momentum seems to be enduring, as the shares are now above both their 50-day and 200-day moving average. I therefore suggest you go long at the current share price of 918p at £3 per 1p. Put the stop-loss at 618p, giving you a total downside of £900.

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