Dairy Crest in demand after upbeat broker note

Discussion in 'Market News' started by Lily, Jun 2, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Investec analysts upbeat about business after a year of transition

    Dairy Crest, the business behind Cathedral City, is on the rise after an upbeat brokers note.

    The company has gone through a structural change by selling its milk business and it reported a 5.8% fall in full year revenues last month. But it said profit margins remained strong at its remaining businesses, despite the competitive pressures from its supermarket customers. Analysts at Investec have just issued a buy note, albeit with a reduced target price, which has helped lift its shares 1.6% to 553p and make it one of the biggest risers in the FTSE 250. Investec said:

    A year of transition, 2016 saw Dairy Crest shed its liquid milk operations and add higher value ingredients to the business mix. There was little overall profit progress, although we expect better profit growth this year as ingredients make a first contribution. The stock has already re-rated to reflect the upgrade in the quality of profits, ex-dairy, so there is less obvious re-rating upside from here. Our target price suggests 9% upside, but with a 4% yield, this keeps the stock in buy recommendation territory for now.

    Our new forecasts for 2017 and 2018 are around 4% lower than before, largely reflecting a higher interest cost assumption, with some modest trim to EBIT. This in turn feeds through to a reduced target price of 600p (from 625p).

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