View from City Road: Dalgety finds a healthy diet

MAURICE WARREN, chief executive of Dalgety, the food group, said yesterday that September's 16 per cent devaluation of the pound would lead to a 5 to 10 per cent increase in food prices on shop shelves.

If he is right, it means that Dalgety and rival food manufacturers will have passed most of the cost increases arising from devaluation on to retailers. If he is not, suppliers will be squeezed.

According to the latest government inflation figures, food prices are rising by a mere 0.3 per cent. Against this tight background it is hard to imagine food retailers calmly absorbing all the costs from devaluation.

It is equally difficult to see retailers - particularly the big chain store operators like Sainsbury and Tesco - risking market share by passing on all the costs to shoppers.

Mr Warren's optimism has some basis in experience. In Dalgety's farm-supplying business the company has managed to pass on all cost increases from devaluation to farmers. A poor harvest compounded the problem but Dalgety still escaped unscathed.

Dalgety made pre-tax profits of pounds 56.2m for the six months to 31 December, up 4 per cent on last time. Agribusiness played a strong role, contributing pounds 14.6m to trading profits against pounds 11.9m.

Consumer food profit was also solid. Despite help from an acquisition and with devaluation difficulties yet to surface, consumer food - which includes Golden Wonder crisps, Homepride flour and Spillers pet food - made trading profits 8 per cent higher at pounds 30.8m. Sooner Snacks, bought this time last year for pounds 44m, was responsible for half the increase.

Setting on one side the unresolved impact of devaluation, Dalgety is in good shape and ready for expansion. Earnings per share have risen for five years on the trot and look to do the same this year. The half-year dividend is up 5 per cent at 7.85p and if the full-year payout rises in line the shares - up 3p at 470p yesterday - will yield 5.8 per cent.

But to excite the market Dalgety will have to be bolder about expansion strategy. None the less it is a sound performer with defensive qualities that will still have some appeal in a recovery - when it comes.

(Photograph omitted)