The Investment Column: Profits rise at Dairy Crest

Dairy Crest, the marketing and processing division of the former Milk Marketing Board, has proved a sterling performer since coming to the market in summer of 1996.

Priced at what now appears like a measly 155p, they have risen steadily and closed at 279.5p yesterday, up another 6p.

The company has been tipped as a takeover target ever since it was privatised, but with 60 per cent of the shares still owned by its farmer producers, any bidder would have its work cut out.

In the meantime, Dairy Crest's management, led by John Houliston, the chief executive, has concentrated on developing its core cheese, spreads and liquid milk operations while fulfilling the pre-flotation promise of improving earnings by 10 per cent a year.

Yesterday's results for the six months to 30 September showed further signs of progress. Pre-tax profits were 13 per cent higher at pounds 18.7m with the earnings target comfortably exceeded.

The best performance was in the all-important consumer foods business, which includes the spreads and cheese operations. Here profits rose by 14 per cent and the margin increased from 5.9 per cent to 6 per cent.

In spreads, the Clover brand was helped by Unilever's decision to pull its Dalesby range. In cheese, Dairy Crest has benefited from the increasing consumer trend from mild to mature and farmhouse cheddar. The group's Cathedral City brand saw sales rise by 30 per cent in the year.

Liquid milk operations managed to edge up profits even though the household market fell by 9 per cent in the East Anglian region and pricing pressures from supermarket customers remain a problem.

The one black spot yesterday was the ingredients business, which was affected by the strength of sterling cutting domestic prices for butter and skimmed milk powder by more than 10 per cent.

Assuming Dairy Crest hits Henderson Crosthwaite's full-year forecast of pounds 41m, the shares trade on a forward rating of 11.

That is a discount to both Unigate and Northern Foods and still reasonable value even after a good run.