Saputo, the Canadian dairy giant, has "filled a large hole" in its fluid milk business with the acquisition of local form Neilson Dairy, according to analysts TD Securities.

The company announced yesterday (22 October) that it had struck a deal to buy Ontario-based Neilson from Weston Foods for around C$465m (US$369.6m).

Neilson makes fluid milk and a range of dairy products from two sites in Ontario and generates annual sales of around C$600m.

Saputo said the deal would boost its presence in the fluid milk and cream categories in Ontario and Michael van Aelst, an analyst at TD Securities, agreed that the acquisition would benefit the business.

"Saputo presently has low single-digit fluid milk market share in Ontario and Quebec, so we argue that this acquisition fills a large hole in its fluid milk business as it should significantly increase Saputo's ability to supply dairy products to customers nationwide," van Aelst said in a note to investors.

Van Aelst said the deal would increase Saputo's earnings per share but said his valuation on the company's shares had slipped from C$32 to C$30.

"Although the 9.3x EBITDA valuation was on the high side for a fluid milk business and synergies may be more modest than we have seen in previous acquisitions, we still expect the acquisition to be modestly accretive to EPS right off the start," van Aelst said. "We expect the acquisition to add C$0.06 annually to EPS before synergies and potentially C$0.10 annually after synergies."

Van Aelst said his forecast for Saputo's share price was "about 10% lower than
consensus" for the company's fiscal 2009 year. He added that Saputo shares "are likely to move sideways or possibly lower" until the company's second-quarter results are published on 4 November.

However, he added that the potential for earnings per share growth over the next 12 months meant that the stock justified a 'buy' recommendation. "Once the market adjusts to the lower forecasts, we believe the stock will be an attractive investment given the stronger growth outlook in calendar 2009," van Aelst said.