Investment Column: Unigate milking earnings growth

AFTER PULLING out of its pounds 1.6bn bid for Hillsdown Holdings, Unigate is suddenly under pressure. With pounds 231m in the bank, the dairy and fresh foods group has the firepower to make a major purchase. But shareholders would like to see a deal sooner rather than later, or else have that cash returned to them.

Unigate is more inclined to hit the acquisition trail but its cautious reputation seems to rule out an early deal. The other problem is that there are few obvious targets. Unigate is thought to have looked at Geest a while ago but the fresh food group's shares have since doubled. Hazlewood Foods had its attractions too but it is also now looking expensive. Unigate remains interested in parts of Hillsdown, of course, but given that it backed out of the deal because of Hillsdown's current trading statement, investors should not hold their breath.

The uncertainty has cast a cloud over Unigate's shares, which peaked at 731p earlier his year. Nevertheless, the company is enjoying strong earnings growth. Profits before exceptionals grew by nearly 12 per cent to pounds 139m in the year to March, with a higher contribution from every business. Fresh foods did well in spite of a fall in UK pig prices at the group's Malton business as consumers shifted back to beef from pork. Chilled products also performed well, helped by Teletubby yoghurts which have sold 14m pots since their February launch.

A dairy deal is always a possibility, though Unigate feels an Express Dairies style de-merger will not add to shareholder value. So perhaps a special dividend is the most likely. On current year forecasts of pounds 158m, the shares - up 6p to 664.5p yesterday - trade on a forward rating of 13. Worth holding.

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