MIDAS UPDATE: Dairy Crest's prospects frothy if Muller deal is given go-ahead

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End of an era: Dairy Crest was born out of the Milk Marketing Board and its milkmen have been delivering pints since the Second World War

Dairy Crest was born out of the Milk Marketing Board and its milkmen have been delivering pints since the Second World War.

However, ten days ago, the company announced the £80 million sale of its dairies to Muller, the German yogurt giant that already owns Scottish dairy group Robert Wiseman.

The sale may be the end of an era, but the stock market cheered the deal. The shares rose sharply on the day and at 5051⁄2p are 18 per cent higher than they were before the sale was announced.

Midas recommended Dairy Crest in January 2013, when the shares were 4001⁄2p. Now that investors have made a 26 per cent gain, should they sell or hold?

The Muller deal is certainly a smart move, leaving Dairy Crest free to focus on its more profitable cheese, butter and spreads business, whose products include Cathedral City Cheddar, Davidstow Cheddar, Country Life butter and Clover spread. The company also recently began making whey powder, used for infant formula milk, a fast-growing market.

Analysts expect profits to fall 3 per cent to £60 million for the year to next March, reflecting the sale of the dairies.

But they are then forecast to rise to more than £73 million in 2016.

Dividends are expected to rise 2 per cent to 21.8p next year and to 22.5p the year after.

However, the Muller deal has to be approved by the competition authorities, so uncertainties about the future remain.

Midas verdict: Dairy Crest’s prospects are brighter than they were, providing that the Muller deal is given the go-ahead. Pessimistic investors should sell now, just in case the sale falls through.

Otherwise, these shares are a firm hold.