Glanbia plans glorious future on winning whey

Harry Potter's magic lifts Ottakar's; Bid hopes keep Bespak in the running
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The Independent Online

When Little Miss Muffet sat down for lunch little did she know that she could be on the brink of discovering the next big craze to sweep the multibillion-dollar diet industry.

When Little Miss Muffet sat down for lunch little did she know that she could be on the brink of discovering the next big craze to sweep the multibillion-dollar diet industry.

Whey, that grey watery liquid left behind when milk forms curds, is being touted as the stuff of dreams for anyone looking to lose weight.

It would certainly be the stuff of investors' dreams if Glanbia, the Irish dairy group, manages to corner the market in supplying protein-rich whey to the big food groups hungering over ways to boost their healthy credentials.

That is the company's plan, following its recent decision to sell its fresh meat business and concentrate instead on making nutritious consumer foods and developing its interests in cheese and nutritional ingredients.

An admission yesterday from its biggest shareholder, the co-operative of dairy farmers that owns 55 per cent of Glanbia, that it had no intention of mounting a bid to take the group private, despite reports to the contrary, prompted the board to reiterate its commitment to the stock market.

Today, Glanbia still relies on its consumer foods division, home to the Avonmore and Kilmeaden cheddar cheese brands and the Irish rights to Yoplait yoghurt, for more than half of its total sales and operating profits.

Tomorrow, with the company's determination to use its biggest by-product, whey, more imaginatively, could be a different story.

The company has transformed itself since it was spawned in 1997 from a merger of Avonmore and Waterford. In waving goodbye to liquid milk and cooked meats, it has set itself up to cream off fatter margins. A recent decision to build a major new cheese-making plant in the US means that Glanbia can look forward to an extra 7,500 tonnes of whey proteins, which it can channel into new protein-based drinks it is developing such as Yakult-rival Everybody.

The shares, up 6p at 127.5p, have had a good run over the past few months. They trade on a forward profit/earnings ratio of 10 times and although a steal if whey turns out to be a 21st-Century diet wonderingredient there is no rush to pile in. Hold.

Harry Potter's magic lifts Ottakar's

Ottakar's, the bookselling chain, has a history that might be classified under the section marked "thrillers". The business almost went bust a few years ago after a rampant expansion scheme went horribly wrong. But it has managed to claw its way back from the brink and is now on a roll.

Helped by a relatively buoyant book market, Ottakar's has managed to carve itself a lucrative niche between the generalist WH Smith on one side and the larger, specialist stores of Waterstone's on the other. A key part of the strategy has been to concentrate on market towns where the only competition is Smith's or small independents. It has also been dipping its toes in the acquisition waters with the purchase of the James Thin stores last year and 24 Hammicks outlets in April.

Current trading is strong. In the 23 weeks to 12 July like-for-like sales were up by 7.9 per cent boosted by the new Harry Potter book. Ottakar's sold 80,000 copies in the first 24 hours with a cumulative total of 122,000 to date. But even stripping this out, underlying sales were up by 5.2 per cent with strong sellers including the new book on the Atkins diet. Margins are up across the business with sales at the Hammicks stores are up 6.6 per cent. The company is benefiting from savvy site selection and good customer service. And with only 100 branches there is significant scope for expansion.

Evolution Beeson Gregory is forecasting full-year profits of £8m. With the shares closing at 290.5p, they trade on a forward rating of 12. There should be some upside as there is an argument for profit taking after such a strong run.

Bid hopes keep Bespak in the running

The share price graph says it all. Bespak stock halved to 250p in the space of just five months but has since rallied after the company confirmed it was talking to interested parties about a possible bid.

Bespak designs and makes drug delivery systems including inhalers for asthma sufferers for customers in the pharmaceutical industry like Glaxo and Schering-Plough.

Reduced demand for its products combined with price cuts on a key device meant Bespak's financials for the year to 3 May made painful reading. Pretax profits collapsed to £3.3m from £15m and sales dropped 12 per cent to £88.3m.

On a positive note, the company said it had made solid inroads into cutting costs - and was therefore happy to keep the dividend at last year's level of 12.1p. The restructuring, started in November last year, has cost £2.4m so far. Bespak said the process would continue until next January. It also has nearly £9m of cash. Disappointingly, there was radio silence on prospective buyers. Hg Capital is rumoured to be among the names in the frame.

Analysts are predicting sales of about £85m this year and profits of around £7.4m, giving earnings of 19.8p. That puts the stock on a rating of 17.5 times which seems high enough for now.

Hopes that a bid will materialise combined with the "positive" start, Bespak says it has seen this year, might provide some support but the shares, unchanged at 350p last night, are only a hold.

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