Hilton Food Group remains a meaty proposition

Meat-packing company Hilton Foods Group posted a good set of interim numbers last week, despite the difficult market backdrop.

Hilton Food Group

200p +5

Questor says Buy

The company, which produces lamb and beef roasting joints and value ranges for supermarket groups such as Tesco and Dutch-listed Ahold, increased volumes by 9pc.

First-half pre-tax profits rose to £10.4m from £9.7m in the equivalent period last year, on sales 13pc ahead at £427.2m. The interim dividend was raised to 2.6p from 2.4p and will be paid on December 4. New investors can still buy the shares and bank this payment, as the shares do not go ex-dividend until November 4.

The company saw good growth in Central Europe and even added Tesco as a new customer in the region. Sales grew by 51pc in the region to £31m, with profits up to £1.3m from £400,000. However, a large chunk of this profit uplift was caused by start-up costs last year subduing profits.

Operating margins slipped by 30 basis points to 2.7pc, as customers down-traded to cheaper brands. This is not unique to Hilton and margins should hopefully recover with volume growth.

Net debt stood at £25.2m, down from £28.6m six months ago, so the balance sheet is strong enough for the group to be able to cope with any acquisition opportunities should they arise.

The shares are trading on a December 2009 earnings multiple of 10.4 times, falling to 9.3 in 2010 and yielding a worthwhile 4.5pc. This rating is not demanding as the company is expected to grow earnings by more than 12pc in the current year. There should be more growth to come from Central Europe in the future.

The shares were recommended on April 12 at 160p, so they are up 25pc since the initial tip. The stance on the shares remains buy.