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Dairy Crest’s (DCG LN, BUY, T/P 680p) recent share price weakness – which leaves 25% upside to our recently revised price target – is, in our view, unjustified. With leading brands in both cheese and cooking oil, as well as phenomenal performance in spreads H1 performance, any suggestion that Dairy Crest should be a slave to dividend yield is in our opinion wrong. We raise our recommendation from HOLD to BUY.
Dairy Crest Group
Dairy Crest (DCG LN, HOLD, T/P 680p) released interim results broadly in line with both market and our own expectations. Net revenue increased sharply from £190m to £220m, while adjusted PBT rose 8% to £20.0and EPS advanced 7%. We leave our forecasts unchanged for the full year but note the strong first half. We raise our price target from 630p to 680p.
Dairy Crest’s (DCG LN, HOLD, T/P 630p), Nuneaton investor day – held on 19th September immediately after its 18th September trading statement - significantly confirmed the benefits of its decision to dispose of its dairy activities, which left the company on 26th December 2015. Not only did the transaction raise group margins from 5% to 16% but also it enabled Dairy Crest to operate fully as a branded FMCG company.
Dairy Crest (DCG LN, HOLD, T/P 630p), which is due to host an investor day in Nuneaton on Tuesday 19th September, issued a trading statement today for the six months to 30th September 2017. The overall conclusion was positive for key brands, by-products and tended to confirm expectations for financial forecasts. In addition to tomorrow’s site visit and presentations, there will be a senior management Q&A session this evening in relation to today’s statement.
Dairy Crest (DCG LN, HOLD, T/P 630p) is due to release a trading statement on 18th September ahead of its two day capital markets event in Nuneaton, which begins on the Monday evening. The schedule includes Q&A regarding the trading update, plenary presentations and a site tour. The trading statement refers to the 6 months ending 30th September 2017. Relatively easy volume comparisons for Cathedral City should be a feature.
Dairy Crest (DCG LN, HOLD, T/P 630p) Q1 trading statement, released ahead of today’s AGM, confirmed a strong start to the year for the Cathedral City cheddar cheese brand, which enjoyed 15% volume growth. Overall, volume performance for Cathedral City, Clover, Frylight and Country Life was positive to the tune of 7%
Diary Crest’s (DCG LN, HOLD, T/P 630p) full year FY2017 revenue missed market expectations by around 1½% to record £417m compared with £422m in FY2016. Adjusted pre-tax profits and EPS were in line at £60.6m (+5%) and 35.2p (+3%) respectively. The proposed final dividend increase is 2%.
Dairy Crest (DCG LN, HOLD, T/P 630p) releases preliminary FY2017 results on Thursday this week. Our £424m expectation for sales revenue is similar to £423m Bloomberg consensus. However, we are more optimistic about margins. We look for £93.7m of EBITDA and 38.1p of adjusted EPS compared with figures of £89.1m and 35.3p respectively, which appear on Bloomberg.
The central message from Dairy Crest’s (DCG LN, HOLD, T/P 630p) 20th September 2016 capital markets day still stands in our view. The company is well placed for modest domestic growth while enjoying significant headroom internationally. Moreover, cash generation and dividend paying capabilities remain clear and argue positively for near term share price performance.
Dairy Crest’s (DCG LN, HOLD, T/P 630p) released a Q3 trading statement today which was in line with expectations. Cathedral City’s performance improved, after being slow in H1. The brand’s positive momentum is expected to continue into FY2018. Combined volumes of core brands are now in line with the same period last year.
Despite its robust brand franchises in both cheese and butters and spreads as well as significant scope for international expansion in by-products – demineralised whey and GOS – Dairy Crest’s (DCG LN, HOLD, T/P 630p) share price has so far lagged our UK FMCG coverage universe in 2016. With a return to a >4% yield and a clearly articulated investment case, there is near term scope for the shares to outperform. Dairy Crest’s CEO Mark Allen and FD Tom Atherton presented to Whitman Howard’s salesforce yesterday.
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