There is, they say, no such thing as a happy farmer. It’s certainly true of dairy farmers, grappling with plummeting milk and cream prices in an already low-margin sector. Yet dairy processors also are taking their share of the pain.
Dairy Crest said two weeks ago that its dairies business, accounting for 70 per cent of its revenue, would suffer a loss in the first half. It is closing a bottling plant in London and a creamery in Somerset as part of a long-term cost-cutting programme and has had to drop the price it pays to farmers three times since July. It will cut it again in November.
Mark Allen, its chief executive, said the dairy commodities market had been “extremely volatile”, with cream and skimmed milk powder prices alone falling by 15 per cent in August.
However, although milk prices might be leaving a very sour taste, this is a company more than half-way through a well-signposted programme of “long-term restructuring”.
Its plan to focus on its four core brands — Cathedral City cheese, Clover, Country Life and Frijj milkshake — is paying off. All four are outpacing their wider categories and are expected to produce combined sales growth of 4 per cent in the first half. The plan to cut £20 million of costs is on target and, despite price volatility, Dairy Crest is expected to maintain its existing liquid milk volumes.
There is also a potentially lucrative move into the high-growth whey market, a product used as a base for making infant baby formula. Dairy Crest is investing £45 million to create the facilities needed to produce whey at its creamery in Davidstow, north Cornwall.
Despite volatility in the dairies sector, Dairy Crest has maintained its full-year forecast. With the benefit of the milk price cuts coming through in the second half and continued investment in those four core brands and that emerging whey division, the longer-term future looks promising.
The business is also benefiting from buoyant conditions in the property sector, selling off non-core property assets.
Analysts at Shore Capital said that, in a flat-to-declining market, it had increasing confidence in the brand value of Dairy Crest and it reiterated its “buy” rating.
FY PBY £65.3m
FY dividend 21.3p
My advice Buy
Why This is a company managing its costs tightly and also investing in high-growth areas and brands
The high cost of exploration and recent volatility in global oil markets haven’t helped confidence among oil explorers, or, therefore, their taste for mergers and acquisitions. But hold on a minute . . .
A report from Morgan Stanley last month said that oil companies’ appetite for expansion would recover as their cash piles increased — and, as if on cue, Dragon Oil, a cash-rich explorer with principal operations in the Caspian Sea off the coast of Turkmenistan, said yesterday that it was in detailed talks to take over Petroceltic at 230p a share. Its target has said that it is willing to recommend the £500 million offer, which equates to a 30 per cent premium on its 178½p closing share price on Friday. Shares in Petroceltic soared by 40p to 218½p yesterday.
A merger between the two makes sense, as it would expand Dragon Oil’s growing operations in Africa. The company, 54 per cent-owned by ENOC, of Dubai, has exploration under way in Egypt and Tunisia that could be coupled with Petroceltic’s operations in Algeria, Egypt and northern Iraq. Dragon was awarded licences to explore in Algeria last week.
Dragon Oil is sitting on a large $1.86 billion cash pile (and this after it said that it would raise interim dividends by a third). Its half-year profits have also jumped by 20 per cent to $289 million.
This seems like a company primed to do a deal. The question is whether its offer, which some analysts deemed “low-ball”, flushes out a rival bidder.
Shares in Dragon Oil closed 13p down at 561p a share.
Revenue $547m
Dividend 20c
My advice Avoid
Why There is risk in some Petroceltic assets
Helical Bar continued its recent shopping spree yesterday by buying a J Sainsbury regional distribution centre in Bristol — not a flashy property to own, perhaps, but demonstrably safe and reliable for the steady income that it provides.
The purchase confirms the strong return to form for Helical Bar, which endured a tough recession. Although it did not resort to dilutive rights issues, unlike many of its quoted rivals, it had to undertake some painful restructuring. Since then, though, it has raised cash and has been buying developments in trendy Shoreditch in east London, where it has a new scheme around Silicon roundabout and at Barts Square in West Smithfield. It also has developments in the Square Mile and White City.
In its latest full-year results, released in May, Helical Bar said that its decision to invest in the regions for income and in London for capital growth continued to create shareholder value. It has an investment portfolio of more than £600 million, of which 43 per cent is in in London.
With its warehouse business providing a steady income stream and its developments in the capital set to pay off in the future, this is definitely worth tucking away.
Revenue £123.6m
Dividend 4.75p
My advice Buy
Why A steady income stream and long-term investments
And finally...
You may not have heard of Restore, but shares in the office services provider have risen more than 50 per cent this year. Yesterday’s 14p rise to 240½p came on the back of the £23.5 million acquisition of the British division of Cintas, an American rival. It takes Restore’s market cap close to £200 million. N+1 Singer estimates the deal could add £4 million to operating profits. Not bad for a company that, five years ago, under its old name of Mavinwood, was heavily indebted and valued at less than £1 million.
