Investment Column: Dairy Crest overcomes cost pressures


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The Independent Online

Dairy Crest

Our view: buy

Share price: 337p (-0.8p)

Inflation remains stubbornly high, but the food producer Dairy Crest appears to be on track, saying yesterday that its profits for the first half were on course to be "slightly ahead" of the same period last year.

The maker of Cathedral City Cheese drew strength from operational efficiencies and higher selling prices, which is said had "broadly offset higher input costs".

Moreover, despite raising prices, and notwithstanding the ongoing consumer squeeze, Dairy Crest said sales of its five main brands, including Cathedral City, Clover and Country Life, had "in total continued to increase", although it did admit that "volumes of these brands will be lower than in the same period last year".

As the analysts at Panmure Gordon noted in response, the release makes Dairy Crest one of the "few companies in the sector not to provide a negative trading update". The performance should keep the shares on firm footing, as investors, rattled by the market volatility, switch into companies that are perceived as relatively safer in their respective peer groups.

This makes investors want to buy, and the point is reinforced by the recent trajectory of Dairy Crest shares. The stock began the year at levels of well above 400p apiece, but soon fell back, falling to around 350p in early March. That, investors will recall, was after the company issued what many saw as a cautious outlook in its interim management statement in February.

Then came another upswing, which took the share price back beyond 400p in May. But then, following full year results around the middle of that month, the stock once again fell prey to profit taking. After some more ups and downs, it is now changing hands at under 350p.

Yesterday's update suggests that another upswing may be on the cards, as the recent pullback has left Dairy Crest on what we view as an affordable valuation. At around six times forward earnings, the stock, which has an enterprise multiple of closer to five times, is not expensive. Besides, we think the business deserves credit for the way it has managed to navigate recent challenges.


Our view: buy

Share price: 22.25p (-0.75p)

Globo makes technology that allows its customers to access their computers remotely through their phones, an area of considerable growth. It is pushing something called CitronGO! which allows users to bring their personal and professional communication tools together.

The CitronGO! business was given a hefty shove in February after the company carried out a £17.5m share placing. The move also overhauled the company's balance sheet, which now has a net cash position of €1.9m and cash equivalents of €9.8m. Chairman Brett Miller said the capital raising was crucial for the company to accelerate its growth.

The Athens-based group, which listed on Aim in 2007, posted first half revenues up 57 per cent year on year to €19.6m while pre-tax profits more than doubled to €3.8m.

House broker Daniel Stewart increased its target price from 90p to 100p, citing the growth of its operations internationally. International revenues rose four-fold to €9.3m. It also estimates the price will come down from 9.3 times earnings last year, to eight times this year and 5.5 in 2012.

Moreover, the second half of the year is normally the strongest period for Globo, and the company is confident that full year results will be strong. It looks like a good time to buy.

Petra Diamonds

Our view: buy

Share price: 125.5p (+1.25p)

Yesterday's full year results from Petra Diamonds were broadly in line with hopes. The Africa-focused mining business has benefited from what remains a good market for rough diamonds, although it did acknowledge that the uncertain economic outlook in the short term could lead to volatility in rough diamond prices.

Longer term, however, the company is well placed, with good assets. On the downside, it has been facing cost pressures, with Petra highlighting the impact of higher electricity prices, which were up 25 per cent.

Although these pressures, and the risks posed by the economic backdrop, make us cautious, we cannot overlook the longer term story. We also note that Petra is due to step up from AIM to the LSE's main market, which should aid interest in the shares.