Geest cashes in on decadence: The Investment Column

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The Independent Online
Now Geest has stopped slipping up on banana skins it is turning into rather an interesting company. Underlying growth of 69 per cent in profits from the continuing chilled foods operations showed what a fantastic niche it finds itself in and, having finally found itself a new executive chairman, it is well placed to add to those businesses by using the pounds 28m that remains in the balance sheet since Fyffes took the banana business off its hands in January.

As Tesco said earlier in the week, sales of ready meals and other prepared foods are growing like Topsy as people get richer and feel lazier. It seems we no longer feel particularly guilty about paying through the nose for a bag of five different and beautifully washed types of lettuce leaves. And while we sit at our desks, unable to find the time for a proper lunch, what does it matter if we pay more for an exotic pasta salad rather than another boring sandwich.

No surprise then that Geest's continuing operations notched up an increase in first-half profits from pounds 3.6m to pounds 6.1m. That is the figure to concentrate on, rather than the reported profit before exceptionals of pounds 7.3m, which compared with pounds 9m last time when Geest was still in bananas. The numbers were further distorted by an exceptional profit of pounds 15.4m, which represented the book profit on bananas offset by a restructuring charge for the whole produce business.

The good news for Geest is that ready meals are still bought by a relatively small cross-section of the population, even in this country which is miles ahead of probably every other country in the world in this decadent field. The potential for growth here and especially on the Continent, where Geest has set up an office in Brussels, is enormous.

The trouble is that bright outlook is well reflected in Geest's share price, which at 236.5p, up 4p yesterday, is handsomely above the depressed 107p at which it bottomed out last November shortly before the bananas disposal. On the basis of profits this year of pounds 16.5m and pounds 19m next time, the shares stand on a prospective price/earnings ratio of 15, falling to 13. That is quite a premium to the rest of the food manufacturing sector and the shares will probably pause for breath.

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