Bottom Line: Unigate will need a lot of bottle

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ROSS BUCKLAND, chief executive of Unigate, is adamant that the group will not stop doorstep milk deliveries despite the continued decline in customers. More pertinent, perhaps, to ask whether it should stop supplying supermarkets where, with masterly understatement, he admits that margins 'remain unsatisfactory'.

Doorstep deliveries are highly profitable. The 39p a pint compares with less than 20p charged for some supermarket multipacks. But by selling cheaply to the supermarkets Unigate is helping to drive these lucrative customers away from its milk floats.

The demise of the Milk Marketing Board next year can only make matters worse. Mr Buckland admits that prices are likely to rise, but with price wars raging supermarkets are unlikely to accept any increases. Putting up prices for doorstep deliveries will only hasten the defection of customers to the supermarkets.

Unigate is trying to limit the damage by adding to its market share. The purchase of Cliffords and part of the CWS business pushed it up from 13 to about 16 per cent.

Economies of scale allowed it to push through a third more volume on fewer plants. The benefits are clear from the 50 per cent rise in dairy operating profits to pounds 18.6m and the 19 per cent rise in margins to 8.2 per cent.

Mr Buckland is still looking for acquisitions. He will need them. Without them the pounds 50.3m pre-tax profit and 15.5p earnings per share in the six months to September, a 14 per cent rise excluding the lower pension charge, would have looked rather more pedestrian.

Analysts have pencilled in about pounds 130m for the full year, putting the shares, up 6p to 371p yesterday, on a multiple of 11.2 and a 5.8 per cent yield if the 6 per cent interim dividend increase is repeated for the final.

But concern about the milk market and supermarket price wars means there are better bargains elsewhere.