Hilton Food Group has inked a deal that will see a “substantial increase” in the meat volumes it supplies to Tesco, the UK’s largest retailer.

The new supply agreement between Tesco and Hilton runs until February 2019. Hilton said the “full benefit” of the supply deal would be felt in 2015 and subsequent years.

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In an announcement today (2 December), the UK meat group said the deal would see it raise investment levels at its dedicated Huntongdon facility to grow capacity and introduce new technology.

While the company was upbeat on its prospects in the UK, Hilton did warn of a slowdown in the rest of western Europe, due to macro-economic and consumer weakness.

According to Panmure analyst Graham Jones, the Tesco deal means volumes could raise by 40% in 2015, the first full year of the deal.

“We understand Hilton is building a fourth production unit at Huntingdon as well as investing in its existing units. The agreement runs to February 2019, although given the depth and longevity of Hilton’s relationship with Tesco, we would not attach any significance to that date,” he wrote in a note to investors.

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As a result of start-up costs, Panmure lowered its fiscal 2014 earnings estimate for Hilton by 1.6%. However, as the benefits of the deal flow through, Panmure raised its forecasts for fiscal 2015 and 2016.

“With the full benefit of the investment seen in 2015E, we raise our EPS forecast by 12.6% from 30.9p to 34.8p, and coinciding with an up-lift in profits in Australia, we now forecast 24.4% EPS growth in 2015E. For 2016E, we raise our EPS forecast by 14.8% from 34.4p to 39.5p, implying 13.5% growth year on year,” Jones said.

Shares in Hilton edged up 1.15% in morning trade today, climbing to GBP4.30 at 11.07 (GMT).