The sale of Dairy Crest’s St Hubert business to Montagu Private Equity was made within expectations, City analysts have said.
Dairy Crest this morning (29 June) announced it had received a binding offer for its French branded spread business St Hubert from Montagu Private Equity.
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Montagu is offering a consideration of EUR430m (US$540.1m) in cash for St Hubert, which Dairy Crest purchased in 2007 for EUR370m.
The deal, Shore Capital analyst Clive Black said, came in “nicely” within his anticipated range estimate of GBP325-GBP375m.
Investec Securities analyst Nicola Mallard said the transaction amount had hit the EUR430m figure she predicted in March, but added that more may have been achieved.
“To be honest though, the business is more profitable than we had assumed. We didn’t know until now what St Hubert actually makes as it had always been enclosed within an overall spreads number from Dairy Crest. So in terms of the multiple of profitability, it was slightly less than what we had assumed they might have got but the actual number was in line.”
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By GlobalDataMallard believes the deal will allow Dairy Crest to “make more” of its UK business.
“The company hasn’t really been able to [up to now], because when they bought St Hubert their debt went up massively and they were restricted from buying anything else. So selling something that was easy to separate from the rest of the business was obviously going to be an ideal candidate, it has its own management team and set route to market …”
She added: “The other aspect is, St Hubert is probably not going to do, growth wise, in the next five years, what it’s done in the last five years. They’ve done very well to get market share up against a very tough competitor Unilever, so there was a chance it might have gone a bit flat from here, so you could argue that was another reason why they looked to dispose of it. It has transformed their balance sheet, so that gives them the flexibility to look at other businesses, we’re assuming in the UK.”
Black believes Dairy Crest may now engage in “calm reflection” and look for acquisitions in the UK.
“Having been a reasonably leveraged business, management may like to experience the ‘joy’ of a strong balance sheet, deleveraging that should lead to a re-rating of the stock to our minds if the sale is completed. With respect to potential acquisition activity it is most likely to be concentrated in proprietary brand and added value private-label chilled cabinet activities associated with, but not necessarily purely, the dairy cabinet. Any acquisitions can also be expected to concentrate on the British market.”
Panmure Gordon analyst Damian McNeela said the deal was a “good result” albeit just outside the bottom end of its GBP350m to GBP400m valuation range.
