"At about 560p, is mid-cap dairy processing stock LSE:DCG:Dairy CrestÂ poised to break out of a volatile-sideways trend between 500p and 700p over the last two years?Dairy Crest is off many people's radar in a mature bull market, dairy ..."
i think DCG is walking a tight rope.
it only has a small CASh flow after monies on the very high debt, then renegotiated pension full, the high dividend and necessary cap ex.
milk prices have remained high - this must impact volumes,
and bizarrely cream prices have contineud to soar - this must impact margins.
anecdotally volumes of dairy based products are down from more vegans, more en tredn to go soya milk etc... and alocal cafe owener saying that alternatives to milk are noticeably being asked for more frequently. interestingly too their supplier was offering them an alternative to DCG spreads as the costs was now so high.
and the whey extract is an unknown.
we'll know more at 7am Monday!
All IMHO, DYOR + BoL
DCG is in my portfolio (short)
"The Questor Column:
Dairy Crest profits up, but there's some whey to go:
Once part of the Milk Marketing Board, there have been high hopes for Dairy Crest since it sold off its dairies in 2015. The shares have rallied slightly to their highest point since an interim management statement in February was met with disappointment and price targets were reined in.
Last November, the company reported interest from a number of commercial partners after its academic trials showed up a potentially positive impact from putting galacto-oligosaccharide (GOS) into animal feed. In the meantime, GOS is already been sold for use in infant formula, along with demineralised whey, from its £40 million facility built in Davidstow, Cornwall. Dairy trader Fonterra is helping to build a customer base. Cathedral City volumes slipped 5% in the first half after promotional activity was reduced. The company is putting plenty of marketing dollars behind Frylight, its low-calorie cooking spray, and it appears to be working. Butter and spreads are taking market share.
One of Dairy Crests corporate brokers, Peel Hunt, expects forecasts to be underpinned, with infant formula being helped by rising prices. The companys developing export business should benefit from the strong pound and there is more cost to be trimmed, such as from the installation of a new IT system. Dairy Crest at 604.5p. Questor says Hold (at 604.5p)"
nk1999, I think you are right. I should have read it more carefully. Only picked up a small addition this morning at 574.5, sadly for me SP fallen another 10p or so. Not too bothered as long as they do not cut dividend. Hope their gearing does not get too high.
I guess this is the past from RNS that has spooked the investors:
We have seen further milk cost inflation since the half year and have now announced increases in the price paid to farmers of 8.28 pence per litre since June 2016. This represents an increase of 38%. Furthermore, market prices for cream have remained high after more than doubling in the first half of the year. The cream price determines the input costs for our butter business. These movements inevitably result in a short-term working capital outflow and, as a result, we now expect year end net debt to be somewhat higher than 31 March 2016. "
A few months ago DCG was my star performer out of 40 odd shares in my collection, but now showing a loss after holding for 6.7 months of 1.76%. I think they have been oversold today. Broker consensus is Buy, forecast yield 3.9%, ROE 28.6% pa, forecast PE 16 so not that pricey.
I am going to place a small top up limit order to buy <= 575p and see what happens.
Missed bit about cost inflation which probably explains sell-off today. On the other hand their competitors will also have cost inflation of milk etc.
'However, Mark Allen, Chief Executive, warned: Recently we have seen inflation across all dairy markets. To date we have announced increases amounting to 12% in the milk price we pay our farmers. Cream prices have been particularly affected, doubling over a very short period. This sudden cost inflation is likely to have an impact on butter volumes and margins in the second half.'
Trading update looked good to me and a broker upgrade today. I cannot see why SP fallen by over 2.5%. SP has outperformed strongly the last 3 months, perhaps some profit taking or market expecting even better performance than reported.
"Dairy Crest renewal depends on a new whey to reach export markets:
Dairy Crest, which was the last London-listed milk producer before it sold its dairies at the end of last year, is now finding new life as a cheese and ingredients supplier. Milk price slump Milk producers around the world are struggling with a drastic slump in market prices. This volatility spelled the end of Dairy Crests dairies and in December it disposed of a business that made two-thirds of its revenues, yet racked up £143 million in losses in the past four years.
The sale to Müller gained £30 million in net proceeds, lower than hoped, and net debts are therefore set to peak this year above £200 million before cash flow turns positive, house broker Shore Capital believes.
Dairy Crest described the market as challenging last month, although its sales volumes have nonetheless risen 2%. Dairy Crest sees its biggest opportunity in the unappetising-sounding demineralised whey powder and galacto-oligosaccharide. Dairy Crest is producing them at its Cornwall plant, which recently had a £65 million upgrade.
Within two years the analysts expect profits to have jumped to £74 million and the dividend per share to improve from 22.3p this year to 25p, producing a yield of 4.2%. But a dip since the dairy sale completed in December creates a chance for those who think global ingredients will rejuvenate the firm. Hold.
"With a suite of strongly growing brands like Country Life, Clover, Utterly Butterly, Frijj drinks and Cathedral Cheddar and its less profitable but nevertheless essential milk distribution business you might expect Dairy Crest (DCG) to be immune ..."
The CMA is now satisfied for the purposes of section 34A(6A) of the Act that the information and documents have been provided as required by the Notices. The extension has now ended, and eight working days will be added to the preliminary assessment period. This means that the end of the preliminary assessment period is now 12 June 2015.
Competition and Markets Authority case
Muller UK & Ireland Group / Dairy Crest Group merger inquiry
Invitation to comment: closes 8 April 2015
23 March 2015: The Competition and Markets Authority (CMA) is considering whether it is or may be the case that this transaction if carried into effect, will result in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
"Dairy Crest's announced sale of its dairies is a smart deal because it will leave the company free to concentrate on more profitable products such as Country Life butter and Davidstow Cheddar, Midas said in the Mail on Sunday. Dairy Crest's prospects are brighter than before and if the deal goes through the shares are a firm hold. But with approval needed by competition authorities, pessimistic investors should take gains now in case the transaction falls through."
Sage, I did and still believe that the full facts have not been disclosed. However, you are correct and the price is still rising. I will check back after their Q3 data is released and see what has happened to their share price.
I remain unconvinced that the full facts are being delivered to shareholders. Not that many months ago the CEO made a statement about investing in brands such as Frijj. Now we find that Frijj is being sold to Muller. In the recent accounts statement it was mentioned that a large profit was made selling the Nine Elms sites something like £18m. This sale to Muller involves 72 depots; how many are freehold and is the freehold sold as well.
We also hear that whey is the next big profit stream. Surely to get whey you need to process the milk. Having sold off most of their milk supply contracts then the DC buy price will increase over a period of time.
Like all big companies, the dairies division will use an internal cross charge price which I doubt reflects the real cost. I am sure their external customers buy at a much lower rate than their internal customers. In other words, the retailers, bottle milk suppliers, food contracts will be priced much lower than their depots buy price.
DC must be vulnerable to a take over once this deal goes through; albeit that this is likely to take at least 12 months and probably longer. I hear that Arla are already lodging a complaint which will delay the ruling.
Now that people have had time to digest the news I see the share price is falling.
It's true that Dairy Crest retain the liability. However, the fund is closed. Also DCG had this liability before the deal. What has changed is that a loss making part of the company has been disposed of.
The deal is expected to be earnings enhancing so they will have more earnings to meet the same pension commitments. These commitments are as follows:
2017.18 and beyond £20m
So all in, a good deal for shareholders, as evidenced by yesterday's price increase. We do need this deal to go through though.
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