Dairy Crest’s move to pay down debt and increase pension scheme funding should boost profits and result in “strong” EPS growth, a City analyst said today (18 April).

The UK firm announced this morning it will use some of the cash raised by the sale of its former St Hubert French business to revise its capital structure. The company had originally intended to use the funds for M&A. However, the group has struggled to find appealing takeover targets in the UK dairy aisle and consequently ruled out large-scale deals.

Dairy Crest said it would therefore use cash to pay back GBP100m in debt, reduce its credit facility and make a one-off GBP40m cash contribution to its pension fund.

According to Panmure analyst Damian McNeela, the new capital structure should reduce annual interest payments by around GBP7m, bringing them down to approximately GBP10.6m. As a result, Panmure raised its PBT forecast to GBP68.9m in fiscal 2014, which would result in EPS growth of 43%.

“We believe that the use of the proceeds of the St. Hubert disposal are sensible, reducing the company’s on-going interest costs whilst also improving the dividend cover. As previously announced the company doesn’t envisage any large scale acquisitions but the revised capital structure does allow scope for further bolt-on acquisitions,” McNeela said.