The broker highlights that last week Singapore became the first country to approve laboratory-grown meat.
This trend is a long-term structural threat to both companies the broker suggests especially with health concerns over cancer and obesity and animal welfare growing in significance as an ESG issue.
READ: UK market needs to keep up with plant-based meat alternatives as McDonald’s launches vegan line
Meat consumption has started to plateau, it adds, while the plant-based and ‘cultured’ protein industries are ramping up their production.
Any acceleration in this trend poses a risk, RBC suggests, which has started coverage on Cranswick with a ‘sector perform’ rating and target price of 3,900p compared to a market price today of 3,476p, up 0.5%.
As a company, Cranswick is an impressive business said the broker, categorised by solid returns on capital, strong cash generation and consistent investment behind its ‘brand’.
Demand for its products have also seen a strong boost this year thanks to COVID-19 but it looks fairly valued says the broker.
Similar arguments can be applied to Hilton Foods, RBC adds, which has grown by capex and M&A in the face of lacklustre category growth.
This is unlikely to change given rising consumer concerns around animal protein, says RBC.
Cash generation is good and return on capital is above peers but these attributes look to be in the price.
RBC’s share price target for Hilton is 1,200p compared to 1,040p today.