View from City Road: Devaluation begins to bite

INVESTORS in UK food companies should take yesterday's 17 per cent collapse in the shares of Dalepak, the beefburger company, as a warning. The negative effect of September's sterling devaluation has yet to be fully felt in the food manufacturing sector.

Dalepak has impressed investors in recent years. It has expanded from being solely a meat company to exploit demand for vegetarian products. Operating mostly at the bottom end of the market gave it a reputation as a recession-beater. But yesterday Dalepak reported taxable profits of pounds 1.6m, down 6 per cent.

Disappointing results can take some of the blame for the slump in the share price. Before yesterday's news, shares might also have been inflated by remnants of last year's bid speculation. But behind some of the fall is the belated realisation that Dalepak is vulnerable to devaluation. It imports 70 per cent of its raw material and yesterday Michael Abrahams, chairman, gave a bleak assessment of prospects for the full year to April. 'Trading continues to be difficult and has been adversely affected by the cost increases on imported raw materials.'

With the exception of Unilever, the same pain will be felt across the board and few will be able to hand on the full cost increases to retailers. In the firing line behind Dalepak are Cadbury Schweppes, Dalgety, Northern Foods and United Biscuits.

UB, where Eric Nicoli is chief executive, has outperformed its counterparts in the FT-SE 100 by 20 per cent in the past four months. Since devaluation, the company has been sustained by hopes of a recovery in consumer spending. But imports exposure may mean UB will provide the greatest shocks this spring.