Geest looks fair value at current price

Geest: Ulster TV; Virt-x
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The Independent Online

The lure of convenience food has never been greater. More women work than ever before and single-person households are on the rise. Which leaves Geest in pole position to continue increasing its share of the chilled convenience food market.

The lure of convenience food has never been greater. More women work than ever before and single-person households are on the rise. Which leaves Geest in pole position to continue increasing its share of the chilled convenience food market.

In Britain, it's already a £6bn industry, representing 5 per cent of the total food market. Ian Menzies-Gow, Geest's chairman, expects that to double within the next five years, making the company a tasty prospect.

In the six months to 30 June, Geest outperformed a market that grew at 12 per cent, improving on a palatable track record. It reported pre-tax profits up 11 per cent to £17.7m on sales that grew 18 per cent to £329.1m. Although this increase included gains from new businesses, Geest is one of the few companies offering double-digit volume growth.

Among the star performers in its troupe of freshly prepared foods were its bags of pre-washed, pre-chopped, pre-selected salads. Geest's 47 per cent market share dominates a young market that is growing at 20 per cent. Just one in five British households buys a bag of salad once every four weeks.

The same is true of pizzas, where Geest struck gold earlier this year to make a range of products under the Pizza Express brand for Sainsbury's. Demand has far outstripped availability and Geest is investing heavily for next year, when the deal will be extended to other supermarkets.

As a maker of more upmarket food products, such as filled fresh pasta and gourmet soups, Geest is safe from the supermarket price wars that have fired up again recently. Its margins, which slipped slightly to 5.8 per cent in the first half, are expected to end the year flat at 5.9p once price inflation filters through. Geest's constant innovation – it has launched 400 new products out of a range of 2,000 since January – helps it to mask price increases.

The only unknown is how much a recession would dampen shoppers' enthusiasm for Geest's market, which has sprung up only in the last 10 years. But with spare time at a premium, demographics in its favour and defensive stocks in high demand, Geest looks as safe a bet as they come. The stock, down 3p at 688.5p, has risen more than 200p since this column urged investors to buy before the market tasted its quality. With earnings per share forecast at 43.1p, Geest is on a forward multiple of 16. That is fair value in turbulent markets and suggests there is more upside in Northern Foods, its main rival.

Ulster TV

Thinking global and acting global – the theme of last weekend's Royal Television Society biannual conference – may be appropriate for the UK's bigger broadcasters. What is clear though is that the big fish in the UK media pond are suffering most of the fallout from the advertising market recession.

In contrast, Ulster TV, the ITV minnow running the network franchise in Northern Ireland, is relatively insulated. Interim earnings results yesterday saw operating profit unchanged at £6.9m, while turnover, boosted by an acquisition, inched ahead 2 per cent to £20.9m. The interim dividend rose 5.6 per cent to 3.8p.

With a 15 per cent year-on-year advertising sales downturn in the bigger ITV franchises, UTV's 4.9 per cent fall in the six months to June showed substantial outperformance and that trend has continued since. Indeed, the broadcaster significantly upped its share of the ITV advertising market to 2.13 per cent from 1.91 per cent.

The reason for this is straightforward. Big, multinational advertisers have been cutting spending to preserve profit margins first hit by the US economic downturn. UTV has a higher proportion of local advertising in an area – the island of Ireland – that is growing more strongly than the main British economy.

What allowed the broadcaster to post a rise in sales was the acquisition of a 60 per cent stake in County Radio, a three-station chain based in the Republic. Next month, Irish broadcasting regulators are likely to rule in favour of UTV buying the final 40 per cent. Though John McCann, the managing director, is keen to expand the group's radio interests, he must be careful not to overpay as SMG did for Ginger Media and then for its 29.9 per cent stake in Scottish Radio.

Down a penny at 249p, UTV has lost just one-third of its value, a outperforming the three other listed ITV companies. Goodbody Stockbrokers is expected to trim forecast full-year earnings per share to 18p compared with the 18.9p recorded last year. That gives a price-earnings ratio of 13.8 with a prospective yield of 3.8 per cent, making the stock a hold.


The successor to Tradepoint, Virt-x, is making progress, albeit from a small base. It aims for 10 per cent of the pan-European trade in the component stocks of the main national indices by next June.

It is more than half-way to that goal, though the disproportionate amount of Swiss stock volumes, following the merger of the SWX Swiss exchange with Tradepoint, overstates the use of Virt-x in other markets. That said, the volumes reported yesterday in non-Swiss stocks were more than 10 times what Tradepoint achieved.

Backed by Instinet and Merrill, and many other big banks, Virt-x is well positioned to deliver. The stock, down a half-penny at 35.5p, is at three-year lows, offering speculative appeal, especially if further price weakness emerges.