Shares in Hilton Food (HFG) fattened up 1.2% to £11.72 after the food packing specialist announced the £23.8 million acquisition of Fairfax Meadow, a deal providing the company with a platform for growth in the recovering UK food service sector.
Hilton Food also reassured investors, perhaps worried about the wider impact of supply chain disruption and inflationary pressures, that trading in the third quarter has been in line with management expectations.
PACKED WITH POTENTIAL
Numis Securities reiterated its ‘buy’ rating on Hilton Food and upgraded its price target from £14.50 to £15 following the acquisition of Fairfax Meadow, a leading supplier of red meat into the UK’s food service sector.
Analyst Damian McNeela believes the exciting deal ‘expands Hilton’s reach into a relatively unaddressed channel’, whilst providing the FTSE 250 company with ‘the opportunity to leverage its existing protein and product capabilities to drive incremental growth’.
Hilton Food’s success to date has been built on relationships with major retailers including Tesco, Ahold Delhaize and Australia’s Woolworths, but Fairfax Meadow provides a platform for expansion in the out-of-home channel.
The acquired business served up a tasty EBITDA of £4.4 million in the year to December 2019 before lurching to a £2.3 million loss in a Covid-impacted 2020.
Encouragingly, it is now recovering strongly as the UK hospitality and travel sectors fully reopen following the pandemic.
Hilton Food’s CEO Philip Heffer insisted this transaction ‘is all about growth. With its award-winning reputation, Fairfax Meadow represents a great opportunity for Hilton to expand into an adjacent and growing foodservice sector in the UK’, he explained.
Heffer sees the acquisition as marking another step towards Hilton’s goal of ‘becoming the protein partner of choice for every meal occasion - offering high quality, affordable, and rigorously sourced proteins for customers and consumers here in the UK and across the world’.
DIGESTING THE DEAL
Numis’ McNeela believes the acquisition ‘fits well with Hilton’s expanded capabilities in terms of meat trading and sous vide but also provides an opportunity to sell its other proteins, such as fish and plant based, into the food service channel.
‘As such we believe that the acquisition provides a long term growth opportunity for Hilton.’
After digesting the positive impact of Fairfax Meadow on Hilton Food, McNeela nudged up his 2022 earnings per share estimate by 2.6% to 66.8p and his 2023 estimate by 2.9% to 72.1p.
REASSURINGLY IN LINE
Hilton Food also confirmed it has traded in line with expectations since 19 July, with its Australian volumes continuing to grow as local Covid-19 restrictions boost at-home consumption. Its New Zealand facility opened in July and has delivered volume growth through the period.
In Europe, Hilton Food said overall revenue was ‘relatively flat’ for the third quarter as expected, ‘reflecting the increase in the number of consumers eating out following the re-opening of food service’, though it has seen growth in the slow cooked business in the UK, as well as in Central Europe, ‘with continued volume growth in fresh food across both Tesco and Zabka’.
The company also highlighted its ‘demonstrable progress expanding the business across a wider range of protein categories’.
