The Investment Column: Unigate continues to deliver profits

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The Independent Online
In a food manufacturing sector plagued by profits warnings and dividend cuts, Unigate has proved a reliably consistent performer. The dairy and logistics group run by Ross Buckland has regularly turned in results ahead of City expectations and yesterday's pounds 130m pre-exceptional profits were no exception. Management, meanwhile, has been busily reorganising the group, which is now focused solely on food and distribution.

Some of these businesses now have powerful market positions. In yellow fats, for example, Unigate's Gold, Golden Churn and Utterly Butterly brands give it a 24 per cent share of the market, second only to Unilever.

In pork, the Malton subsidiary is the UK's largest pork producer, processing an astonishing 75,000 pigs a week. This business has proved a real gem and profits were up strongly on sales that virtually doubled last year. Fresh foods accounted for more than half of group profits last year for the first time.

With the troublesome Black-Eyed Pea US restaurants business having been sold last year and the stake in Nutricia now long gone, Unigate has cash of pounds 187m. The question is how the company will spend it.

The chairman, Ian Martin, says management will continue to add in-fill acquisitions like the Hargraves and Harris businesses which were added to the Malton division last year. But it could gear up to a pounds 500m deal if it chose. Analysts expect a deal in bacon or yellow fats, probably in continental Europe.

There were two problem areas last year. A one-off concern was in the Wincanton distribution business, where profits were flat due to difficulties in the transport division. Management there has since been changed.

The other headache was the dairy business, which took a pounds 12m hit due to lower profits from butter and milk powder. Then there is the tough market in liquid milk, where sales were 6.9 per cent lower, largely due to the continuing fall in doorstep milk deliveries, although this decline is slowing.

There could be some action here. Last month's merger between Avonmore Foods and Waterford Foods is seen as just part of a major industry consolidation in milk.

Unigate will surely play its part, though Mr Buckland is not saying if this will mean expansion or withdrawal. There are other options, including the possibility of a joint venture with another milk supplier.

Unigate shares have been a steady performer in the past five years and the City clearly believes the management will continue to deliver.

With analysts upgrading current year profits to pounds 140m yesterday, the shares, down 2p to 494.5p, trade on a forward rating of just 11. Buy.