Investment Column: The cream rises for Express as dairy rivals strike a sour note;

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THE DAIRY business is no place to be these days, as results from Unigate and Robert Wiseman dairies showed this week. With 30 per cent of the UK liquid milk market, Express Dairies is too big to escape the gloom; its underlying half-year profits fell from pounds 27m to pounds 25m.

The market's problems have been well aired - oversupply, a fierce margin squeeze from the supermarket majors and the long-term decline of doorstep delivery.

To Express Dairies' credit it has already begun to tackle overcapacity. Its pounds 100m takeover of Glanbia - the former Waterford and Avonmore Foods operation - earlier this year will help cut oversupply by about 40 per cent. Three dairies are being closed, giving rise to exceptional costs of pounds 22m.

The deal had its drawbacks. The deferral of the rationalisation caused by the Glanbia deal, combined with higher pension costs and pricing pressures, knocked pounds 5m off profits. Still, the deal should start to lift profits next year, by which time the milk market could look very different.

Underlying doorstep deliveries continue to decline at 7.5 per cent year- on-year. But market share with major supermarkets is up, and Express has substantially boosted its share in fresh cream.

Where Express is behind is in so-called added-value products, where Unigate and Dairy Crest are making good progress. So far Express's only brand of note is Shakey Jake, a flavoured milk drink that has just been rolled out nationally.

Express's high market share precludes any further big milk deals, but the group should benefit from the rationalisation undertaken by others. On house broker ABN Amro's full-year profit forecast of pounds 61m the shares, down 0.5p at 102.5p yesterday, trade on a forward price/earnings multiple of seven. The yield of over 8 per cent means the shares are worth holding, but capital gains will only be driven by a change in sentiment, and that seems some way off in this sector.