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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Four income funds to add to your ISAAdding one of these four income funds to your stocks and shares ISA ahead of tax year end could pay dividends
-
Are regular savings accounts worth it?A 7% interest rate is eye-catching, but how much can you save in a regular saver account and how does the interest rate work exactly?
-
Three top-notch Taiwanese companies cashing in on the advent of AIOpinion Eric Chan, investment director and co-manager of the Aberdeen Asian Income Fund, highlights three potential Taiwanese winners in the technology industry
-
Weight-loss drugs could revolutionise the economy – the investments to buy nowThe new generation of weight-loss drugs are a boon for the overweight, but they also promise to change our relationship with food and revolutionise the economy
-
England's department stores return – but do they have a future?Opinion The great traditional retail shops of Middle England have bounced back for now. Don’t get too carried away though, says Matthew Lynn
-
Labour's 'Project Chainsaw' begins by abolishing NHS England – will it backfire?Keir Starmer is taking the fight to the blockers, the NIMBYs, public sector workers and the unions says Emily Hohler. What happens if Labour fails to deliver?
-
Find tomorrow’s Asian giants while they are still smaller companiesOpinion Nitin Bajaj, portfolio manager of the Fidelity Asian Values trust, picks three Asian companies to invest in.
-
AI will maintain Moody’s market lead, says Stephen ConnollyOpinion Veteran data provider Moody's has adapted well to the modern world, and is one of Warren Buffett’s longest-held investments
-
Is BlackRock World Mining gearing for a recovery?Opinion After a frustrating year, BlackRock World Mining is positioned for growth and to capitalise on the sector's recovery
-
Should you limit exposure to US tech stocks?An end to the AI boom would shake both US funds and global trackers. Here’s one way to trim exposure to US tech stocks
