One to Watch
DAIRY Crest is an integrated dairy business focused on two market-leading categories: foods and dairies. Unlike its competitor Robert Wiseman, the company has decided to target market-leading positions in branded and value-added markets. The company has five core brands: Clover, Country Life, Frijj, St Hubert and Cathedral City.
The core brands have delivered strong growth recently, driven by significant advertising and promotion spending. A good example is Cathedral City, which has seen retail sales move from 89 million in 2004 to 201m in 2009, yet the brand still only accounts for about 13 per cent of the UK cheddar market, which is dominated by own-label brands.
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Hide AdDairy Crest has made excellent progress cutting debt, which should fall to less than 350m at the year end, representing a reduction of 140m over the past 18 months. Although capex will be required to modernise some of its dairies, management is confident it can reduce net debt by a further 20m in 2011.
The stock offers a yield of 5 per cent and management has committed to a progressive dividend policy. The shares trade on a P/E of only 8.4x2010E, below its ten-year historical average rating of 10x and at this level the risk appears to be on the upside.
The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.
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