Bottom Line: Can of worms for Dalgety

YESTERDAY'S results from Dalgety demonstrate why the group's shares have underperformed the market by about 20 per cent over the past year - and 15 per cent over the past five. Its strategy of making infill acquisitions in areas such as food ingredients and animal feeds, while forging into Europe in snacks and petfoods, is a sensible one. But that is not enough to compensate for the maturity of its markets, and the increasing price pressure from the beleaguered food retailers.

In petfoods, even a 'significant' rise in advertising was not enough to prevent a decline in market share as it refused to cut prices; in crisps, a 10 per cent volume increase in the market was paid for through lower prices and a 5 per cent fall in other snacks; in pot noodles, the surge in sales following last year's product launches proved temporary. Only food distribution bucked the downward trend, and that owed more to aggressive expansion by McDonald's - its biggest customer - in the US than to Dalgety's own efforts.

The acquisition strategy has added almost pounds 100m to borrowings, doubling gearing to 54 per cent. While that should fall to about 40 per cent by the year-end, it will limit the scope for further acquisitions - and any deal would have to be remarkably sweet to persuade shareholders to cough up.

A hike in the tax charge will leave earnings down about 7 per cent for the full year, although profits should be about pounds 8m higher at pounds 120m. A likely 0.5p rise in the dividend to 13p, for a premium 5.4 per cent yield, is little compensation for the pedestrian growth.