Dairy Crest - no spilt milk yet

Dairy Crest: Operating in the UK dairy products and liquid milk industry is a tough gig. Competition is fierce, with fellow large beasts like Unilever, Arla and Muller prowling the pastures and fortunes are fickle. Dairy Crest do have good brand names including Clover, Country Life, Utterly Butterly, Davidstow, Cathedral City and Friij, but it is a constant battle to stay with the game. Dairy Crest have had a tailwind from property sales in recent periods, but these are nearing an end.  Cost cutting and supplier squeezes are a regular feature of life, although every time farmers face a price cut the bad publicity for the liquid milk buyers soon follows. The closure of a liquid milk bottling unit just emphasises the near terminal decline of doorstep deliveries. Men, closer to the pulse than, me point to liquid milk contract uncertainties, with big M&S and Morrison’s deals up for renewal soon, so there is always the next battle to fight. For the year to end March 2015, net debt should be under £200m and with EBITDA of around £110m, the balance sheet is solid enough at present. But in a cyclical and somewhat commoditised industry, regular profit progression is hard to nail down. Last year (to March 2014) the dividend was 21.3p, having been nudged up by 2.9% and was almost twice covered by earnings, for a yield of 5.6% at 377p. This all looks safe enough barring some nasty P&L shocks (such as a major contract loss, say......). So, the PE is low (just under 10x) and the yield looks attractive but I am not convinced about the prospects for dividend growth. This has the hallmarks of a potential value trap that you can trade successfully, but it is not one to buy and hold. (2^nd October 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

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