Investment Column: Wiseman's milk won't go off even in recession


Robert Wiseman Dairies

Our view: hold for now

Share price: 331.8p (+4.1p)

The mood of investors towards Robert Wiseman Dairies soured markedly in September when it issued a nasty profits warning and pinned the blame on yet another price war between the supermarkets and in the independent grocery sector.

Yesterday, the milk producer, which counts Tesco, Sainsbury's and the Co-operative Group among its customers, reiterated that it faced a "period of intense competition" which will inevitably squeeze margins as it churned out a 2.7 per cent fall in pre-tax profits to £21m for the six months to 2 October.

The company, based in East Kilbride, also confirmed its September guidance that this competition would hit its second-half profits by £7m and, assuming no improvement in margins or volume gains, by about £16m in the financial year to March 2012. All of this leaves a taste like a bad pint of Wiseman's product on a hot day.

But despite this, the company, which supplies just under a third of Britain's milk, said it was committed to maintaining its existing volumes, suggesting that it is prepared to stand shoulder-to-shoulder with its rivals Dairy Crest and Arla on price.

This was demonstrated by Wiseman's turnover, which increased by 6.8 per cent to £452.8m over the half year, driven by sales volumes which were 8 per cent higher. In fact, Wiseman said it had agreed to supply Tesco with an additional 35 million litres of milk a year, which helped to move its shares up yesterday. So there is scope for volume gains to freshen performance.

Wiseman provided investors with some further cream by maintaining its interim dividend at 5.75p a share and cutting its net debt to £21.5m from £26.7m. To mitigate the impact of the price war on its margins, Wiseman is pushing ahead with a programme aimed at reducing costs and boosting the efficiency of the business.

Wiseman's shares trade on a rather modest multiple of 8.8 times 2011 forecast earnings, with the stock near a 12-month low after a recent battering. Life is not going to get much easier for the company anytime soon but with the shares so depressed we wouldn't be bailing out just yet. Whatever the general economic climate, people are unlikely to stop buying milk. So, on balance, there is a case for keeping hold of the shares for the moment.

Lonmin

Our view: hold

Share price: 1838p (+71p)

Investors in Lonmin must be pleased. The platinum producer's annual figures surpassed market hopes as prices and output recovered. Lonmin also met its annual sales target despite problems with a troublesome furnace, and reinstated its dividend, sending its shares higher on the day. Some analysts weren't convinced, however.

Panmure Gordon, for example, stuck to a bearish view, expressing its surprise at the dividend as net debt, at $357m (£222m), was higher than expected. Evolution was also wary of the stock, noting that 2011 was set to be a tough year as the problematic Number One furnace will be shut down during the first quarter.

Moreover, the broker pointed out that while costs had risen at a slower rate than South African inflation, Lonmin remained a high cost producer. We are inclined to plant our flag midway, agreeing that Lonmin still faces certain issues, but noting the prospect of further gains in platinum prices (although up 15 per cent this year to about $1,675 per ounce, they remain clear of the 2008 peak of $2,290) as the world economy continues its recovery from the recent slump.

That should help underpin Lonmin's performance and the share price, which, though ahead of its June low, remains below levels seen at the beginning of this year. This is no candidate for a sell, so keep holding.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

They fled war in Syria...

...only to get stuck and sidetracked in Hungary
From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

Title sequences: From The Prisoner to Mad Men

Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

Giorgio Armani Beauty's foundations

Sumptuous fabrics meet luscious cosmetics for this elegant look
From stowaways to Operation Stack: Life in a transcontinental lorry cab

Life from the inside of a trucker's cab

From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

Kelis interview

The singer and sauce-maker on cooking for Pharrell
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea