A slimmer, more attractive Geest

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The Independent Online
Life after bananas should prove rather interesting for Geest. Having sold its banana division to Fyffes for pounds 147m in January, the company is now a slimmed-down and much more attractive producer of ready- made meals, soups, sauces and dips that it sells to all the large supermarkets.

These are growth areas and Geest has strong market positions in all of them. It has invested pounds 57m in its factories over the past three years and is starting to reap the benefits. Last year, sales of salads and prepared produce both rose by 30 per cent while sales of dressed salads, soups and dips increased by 40 to 60 per cent.

There have been margin pressures due to higher raw material costs such as iceberg lettuce, which are being flown in from California at three times the previous cost after a harsh winter in Spain. But Geest is having some success in passing higher prices on to customers.

Yesterday's figures did not tell the whole story as they pre-dated the effects of the banana sale, which took place after the year end. Group profits fell from pounds 12.3m to pounds 10m, largely due to lower banana profits in the second half.

There was a pounds 3.4m loss on the disposal of the wholesale services division and a further pounds 3.5m relating to an asset write-down on the Necta pineapple business which made a pounds 2.7m loss in the year.

Geest has booked pounds 18m on the banana sale and now has net cash of pounds 42m. It plans to invest a further pounds 20m on its convenience foods operations this year.

The big question hanging over Geest is how long it can retain its independence. Takeover speculation is rife, with both Hillsdown Holdings and Unigate being tipped as potential predators in order to build on their growing interests in convenience foods.

There is little downside here for shareholders. If a bid does materialise it is likely to be at a substantial premium. If it doesn't Geest's trading performance should justify the current price, which closed 4p higher yesterday at 224p.

BZW is forecasting profits of pounds 16m this year which puts the shares on a forward rating of 15. Hold on.