LIVERPOOL stockbroker Panmure Gordon today shifted its recommendation from ‘buy’ to ‘hold’ on Dairy Crest shares after a disappointing trading update.
The statement, covering the nine months to December 31, said overall trading remains in line with expectations and the group is on track to exceed its annual cost savings target by delivering savings of around £23m this year.
Its financial position was strengthened by the sale of its St Hubert division which it is using to pay down debts and service its pension fund in the absence of any suitable acquisitions.
However, a 4% rise in sales for its four key brands of Cathedral City, Country Life, FRijj and Clover is a slowdown from the double digit increases seen in the first six months of the year.
And it said it anticipates mid-single digit sales increases for the full financial year.
Dairy Crest also said capital expenditure will remain relatively high next year as it invests in a range of projects, including its Kirkby spreads factory which employs about 170 at the moment but will grow by up to 50 more jobs as it becomes the sole spreads centre for the group.
Chief executive mark Allen said today that the group had “delivered a solid performance in the third quarter”, and confirmed that it intends to restructure its balance sheet.
However, the update failed to impress Panmure Gordon analysts Damian McNeela and Graham Jones who downgraded their recommendation on the basis of poor sales.
They said: “Dairy Crest’s third quarter interim management statement indicates that branded sales declined in quarter three resulting in 5% sales growth (volumes up 4%) for the nine months to the end of December, which is slightly below our expectations.
“Dairy Crest expects to report mid-single digit value growth for full year 2013 estimates. The company has stated that it cannot find any suitable acquisition candidates in the UK and as such it is seeking to use the proceeds from St Hubert to restructure debt and address the current pension deficit.
“Restructuring the balance sheet clearly has it merits and repaying debt is likely to be earnings enhancing, but clearly not to the same degree as an acquisition, and as such we are slightly disappointed by the development.
“Given the weakness in quarter three sales we are reducing our earnings before interest, tax and amortisation (EBITA) forecasts from £69.6m to £69m for full year 2013 estimates.
“Given the shares’ recent good performance, weaker than anticipated quarter three sales and the removal of a key positive catalyst, we move our recommendation from buy to hold and set our (share) price target at 430p.”
