Investment: City's verdict on Unigate is harsh

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The Independent Online
THE PAST few months have not been good for Unigate. The dairy and fresh foods group backed away from acquiring Hillsdown Holdings in the spring causing the shares to tumble from their pumped-up peak of 738p. Its Malton pig processing business has been struggling against an over- supplied market and the evaporation of orders from Russia.

On top of that its juices business has been hammered by a new Procter & Gamble rival called Sunny Delight while sales of margarine spreads have started to slide for reasons the management cannot fathom. With all this is mind it was perhaps no surprise that the company warned of a "pause in growth" this year.

But the decline in Unigate's share price might be a little harsh. It is true that the weakness in consumer spending will affect the group. And the City is also unhappy about the company's reluctance to disclose its plans for its pounds 167m cash pile.

But imagine how much worse it would have been if Unigate had gone ahead with the Hillsdown deal at what proved to be the peak of the market. Also, the group remains in decent shape.

Though half year profits were flat at pounds 67.5m and the fresh foods division was dragged down by the Malton performance, the contributions from the dairy business and the Wincanton distribution division increased by 7 per cent and 17 per cent respectively.

The dairy unit has won new business from Tesco since the half year and Wincanton reckons it will benefit from a downturn when more companies are inclined to contract out their logistics requirements. With lower costs at Malton after the expiry of an uneconomic contract with farmers, Henderson Crosthwaite is expecting full year profits of pounds 146m, before exceptionals. That puts the shares - down 21.5p at 502p yesterday - on a forward multiple of 11.

The immediate outlook is unexciting, particularly with no news on the cash pile, but at these levels Unigate is one to tuck away.