Hilton Food Group: A Hidden Gem in Food Processing with Global Ambitions

Hilton Food Group (LON:HFG), a leading player in food processing and packaging, has quietly built a compelling case for investors seeking undervalued growth opportunities. Recent financial results, strategic expansions into high-potential markets like Saudi Arabia and Canada, and a robust cash flow position suggest the stock is poised for a valuation re-rating. Here's why investors should take notice.

Financial Performance: Margin Expansion and Cash Generation

Hilton's latest results highlight a company leveraging operational efficiency to drive profitability. Despite macroeconomic headwinds, revenue remained stable at £4.0 billion (statutory basis), while adjusted operating profit surged 10.2% to £104.7 million, with margins expanding to 2.6%—a clear sign of cost discipline. Notably, adjusted EPS rose to 61.0 pence, a 15.5% increase over 2023, reflecting improved pricing power and volume growth in core categories like retail meat.

Cash flow remains a bright spot: free cash inflow of £62.2 million (despite a dip from prior years) supports debt reduction, with net bank debt falling to £131.4 million. The company's net bank debt-to-EBITDA ratio improved to 0.9x, a strong indicator of financial flexibility. This resilience has allowed Hilton to boost its dividend by 7.8% to 34.5 pence per share annually, yielding a 3.74% dividend yield—a compelling feature in a low-interest-rate environment.

Strategic Expansions: Global Growth Pipeline

Hilton's recent foray into international markets underscores its ambition to capitalize on underpenetrated regions. Key initiatives include:
1. Saudi Arabia's NADEC Joint Venture: Partnering with National Agricultural Development Co to establish a food-processing hub, set to launch in H2 2026. This taps into Saudi Arabia's Vision 2030 plan to diversify its economy and reduce food imports.
2. Canadian Facility: A new plant in Canada (planned for early 2027) will serve Walmart and other retailers, leveraging Hilton's expertise in meat processing.

These moves align with the company's sustainable protein strategy, which targets high-growth markets while reducing environmental impact. Sustainability efforts, including a net-zero target by 2048, are likely to attract ESG-conscious investors.

Valuation: Undervalued Relative to Growth Prospects

At a current stock price of £9.04 ($11.68 USD), Hilton trades at a P/E ratio of 16.55 (based on trailing EPS of £0.61), which is below the broader market's P/E of 24.63 but above the Consumer Defensive sector average of 12.39. However, the PEG ratio—a metric comparing valuation to growth—paints a more favorable picture.

Analysts project EPS growth of 3.7% in 2025 (rising to 6.6% in 2026), implying a PEG ratio of 2.5—still reasonable given the strategic pipeline. A longer-term growth trajectory, fueled by the Saudi and Canadian ventures, could push the PEG closer to 1.5, justifying a higher valuation.

Investment Thesis: Why Buy Now?

1. Margin Expansion and Cash Flow: Improved efficiency and disciplined capital allocation suggest further profit upside.
2. Global Growth Catalysts: The Saudi and Canadian projects, while delayed in timing, represent high-margin opportunities in fast-growing markets.
3. Dividend Sustainability: A payout ratio of 63.5% leaves room for both dividend growth and reinvestment.
4. Institutional Support: With 62.25% institutional ownership, the stock benefits from professional investors' confidence.

The analyst consensus “Moderate Buy” and a 17.15% upside to the £1,052 target price reinforce the case for long-term investors.

Risks to Consider

• Input Cost Pressures: The UK/Ireland segment faces inflationary challenges, though Hilton's automation investments may mitigate this.
• Execution Risks: Delays in the Saudi and Canadian projects could impact near-term earnings.

Conclusion: A Compelling Buy with Upside

Hilton Food Group's combination of improving fundamentals, disciplined capital allocation, and high-potential international expansions positions it as an undervalued opportunity in a sector ripe for consolidation. With a P/E ratio that lags its growth prospects and institutional backing, the stock offers a risk-reward profile that rewards patience. Investors seeking exposure to a resilient, cash-generative business with global ambitions should seriously consider adding Hilton Food Group to their portfolios.

Data as of June 9, 2025. Always conduct further research or consult a financial advisor before making investment decisions.