The verdict from the City: Mixed reaction to Dairy Crest losses

By Michelle Russell | 24 May 2012

The UK's largest dairy processor Dairy Crest this morning (24 May) made a full-year net loss after incurring impairment charges at its dairies business. The firm, which plans to close two dairies and is mulling the future of its French business, delivered results that garnered a mixed reaction from the City.

"With no 'disaster' indicated for dairy this year, we stand by our analysis published on May 9 indicating that we thought the market was perhaps attaching too bearish a value on the dairy business after making assumptions around the value of St Hubert and food. We expect we will have to wait another month or so for news on St Hubert, but if the price is better than we expect, that could provide further positive impetus for the stock. We retain our EV/EBITDA-based target price of 340p and Buy recommendation" - Investec analyst Nicola Mallard

"Dairy Crest has reported 2011/12 preliminary results a little below expectations, with core pre-tax profits of GBP74.9m (Shore Capital forecast GBP77.5m). Note our continuing number does not include property profits (GBP4.6m) and is post the impact of restructuring costs reported for the dairy (GBP5.3m) and spreads businesses (GBP2.6m). Earnings per share on our measure is 40.4p, a 9.9% decline year-on-year. On a positive note, management is proposing a 3.5% increase in the final dividend to 14.7p (Shore forecast 14.5p), which will result in a full-year payout of 20.4p, covered circa 2x on our continuing numbers. We are also pleased to note that net debt has come in a touch lower than forecast at GBP336m (Shore forecast GBP341m)" - Shore Capital analyst Darren Shirley 

"Dairy Crest's FY 2012 results are in line with expectations with pre-tax profit flat at GBP87.4m and EPS up 5% to 49.4p. The company is taking action to remedy the dairies business but we expect lower profits at the division to contribute to a fall in PBT in FY 2013 and FY 2014. We lower our earnings per share forecasts by 6% to 46.7p and 4% to 48.5p for FY 2013E and 2014E respectively. We maintain our Hold recommendation given the challenges to the base business but recognise that should the company achieve a sale of the French spreads the remaining business would be attractively valued" - Panmure Gordon analyst Damian McNeela

Sectors: Dairy, Financials

Companies: Dairy Crest

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