Dairy Crest Share Discussion Threads

[salpara111] 05/3/2012 11:11

Aleman, you may want to pick up a copy of Frank Woods business accounting. My first year accounting & finance textbook and still regarded as the bible by accounting trainees.

The reason I mention this is due to the fact that you are wanting to "add back" cash items to the Cash Flow statement.

The fundamental premise of the Cash Flow statement is to reconcile profits with NON CASH ITEMS, that is why you add back items like depreciation which are charged through the P&L but are clearly not cash items.

Anyway this is not an accounting seminar.

I am not fundamentally against RWD....I wouldnt be wasting my time looking at them if I was, however the business is under pressure and I dont see the catalyst that is going to change that in the next 6-12 months.

[aleman] 05/3/2012 00:44

That's after tax, interest and working capital changes. It's distorted by the big increase in working capital. Go up 3 lines and cash from operations is £11.6m and £51.8m, then add back the cash absorbed by increased working capital in the line above of £42.7m and £3.1m to get operating cashflow before working capital changes of £54.3m and £57.4m. This is the best measure of the underlying performance of the business. The £42.7m absorption of cash by working capital for more expensive milk and higher cheese stock is unlikely to occur again. That £42.7m figure could be zero in H2 and the next H1 or reverse to an extent and add to operating cashflow as the extra cheese is sold (or, less likely, milk prices ease). The underlying cash generation seems farily solid and undervalued by the market.

The next full year on an underlying basis, if working capital is flat, should be roughly cash from operations £120m (after £20m extra to pension). Take off interest of £22m (as debt is up a touch) and tax of £18m and you get £80m on your line that shows £92.2m for last year. Capex should ease after a strong couple of years. If it's in line with depreciation (it could drop below), it might knock off £32m and then subtract £28m (increased) dividend and £2m or so leases and you get free cash left to pay down debt of £18m. (This is after it probably falls a bit in H2 this year as some of that extra cheese stock is sold). My best guess is debt will drop to £337m at the end of next year from £365m at the last interims. Trading and exceptionals will muck all this up, of course, but you have to make estimates as an investor.

EDIT- there were refinancing fees of £2m+ and a fine of £7m which will probably eat up into my £10m unwinding of working capital this half so make that no change at finals and £347m at the end of next year, down £18m in 18 months as turnover and profit creep upwards.

So, the dividend looks to have a little headroom but there does look to be one significant threat in the pension deficit. The extra payments look like being enough to eradicate this by 2018 but you never know. (The worst outcome would probably just be an extension of the £20m payments.) With luck, that extra £20m cash cost will disappear in 6 years and the market cap could look even cheaper against underlying operating cashflow, when excluding pensions top-up, of £140m+ and freecashflow after dividends of about £33m, plus whatever growth and debt reduction (interest could fall or rise on lowering debt) the next 6 years brings. That's a market cap of 3.5 times operating cashflows falling to 3 times or less in 6 years. I'd like to know if you can find anything cheaper that isn't in trouble, please. (I know a few.)

[salpara111] 04/3/2012 22:31

Aleman, not sure where your figures are from but when I look at the last interims dated 10/11/2011 I get
half/year ended 30 Sept
2011 2010
Net cash flow from operating activities (7.0) 33.0

That is probably the cleanest figure to look at and from my perspective..."not great"

[aleman] 04/3/2012 15:14

Cashflow not great?

Operating cashflow before working capital movements:

H1 last year £54.9m
Full year £116.4m
H1 this year £54.3m

It's the £43m increase in working cap and £11m acquisition that has increased the debt by £54m. The increase in working capital was higher milk prices and cheese stocks which should lead to higher sales prices and margins in H2 and operating cashflow in H2. Operating cashflow of £120m or so this year and probably more next year (if milk prices stop rising and the acquisition chips in) makes the market cap of £420m look cheaper than all but a handful of alternatives. Care to recommend me anything else trading on 3 or less times likely operating cashflows that isn't drowning in debt? (DCG underlying operating cashflow covers £19.8m interest around 6 times and rising.)

[salpara111] 04/3/2012 14:07

Cash flow is not great quite frankly.

Net debt rising is the other side of the same coin and again the main reason for the rise....higher bulk milk costs and cheese inventory are not exactly good news stories.

However that is not really my biggest concern. Pretty much 75% of the business revenue is bulk milk and that business is now just about at break even.

They are doing the right thing in diversifying into value added products but they are struggling to offset the decline in the diary business.

The only reason I would look at these around 300 is that I think there should be limited downside in the share price and the divi is currently safe so better than money in the bank.

[muffinhead] 03/3/2012 22:30

Salpara
whats your take on the consolidated cashflow statement

[salpara111] 03/3/2012 13:27

Just popped up on my radar again.

Seems like a decent business with a covered dividend.....despite the recent customer hiccup!

However I cant see what will happen in the next 6-12 months that will cause it to reverse trend....apart from a wild card takeover offer and I never buy with the express hope of a takeover.

Will put on my watch list and if it hits 300 I may take a nibble.

[soi] 02/3/2012 15:48

So did I, just bought today, don`t like the long term decline but will see what happens.

[topvest] 02/3/2012 13:25

Just added a few of these - look good value at this level for such a robust business with some quality brands.

[artibee] 13/2/2012 09:23

How can they be owed £4 million by a relativlely small regional manufacturer?

[skinny] 13/2/2012 07:07

RNS Number : 2806X

Dairy Crest Group PLC

13 February 2012

13(th) February 2012

Dairy Crest Group plc ("Dairy Crest") and Quadra Foods Limited

On 2(nd) February 2012 Dairy Crest issued an Interim Management Statement in which it confirmed that overall trading was in line with its expectations. Its underlying trading has continued to be in line with expectations since that date.

Dairy Crest wishes to inform the market that a customer, Quadra Foods Limited ('Quadra'), has called in Administrators. As a result Dairy Crest anticipates it will increase its bad debt provision by up to GBP4 million. This is the total debt owed to us by Quadra although we are looking at several options to reduce the amount involved.

We expect to treat any charge as an exceptional item in 2011/12 and as such it will not impact on our dividend considerations. Dairy Crest has annual sales of GBP1.6 billion and this is an isolated incident. It will have no material effect on our year end borrowings.

[aleman] 10/2/2012 18:21

Peel Hunt SELL 06 Feb 2012
2011 87.60 49.25 19.70 1,603.34
2012 89.00 51.11 20.50 1,638.60
2013 93.00 52.36 21.50 1,670.09
2014 - - - -

NCB Stockbrokers Ltd BUY 03 Feb 2012
2011 - 47.07 19.70 1,605.00
2012 - 49.36 20.66 1,625.00
2013 - 49.43 20.69 1,618.00
2014 - - - -

Panmure Gordon HOLD 03 Feb 2012
2011 87.60 47.10 19.10 1,609.00
2012 86.60 49.30 19.90 1,623.00
2013 87.40 49.40 19.90 1,641.00
2014 89.00 50.50 19.90 1,652.00

Numis Securities Ltd BUY 02 Feb 2012
2011 87.60 46.20 19.70 1,605.00
2012 88.00 48.70 20.50 1,657.00
2013 90.00 50.10 21.50 1,713.00
2014 96.10 53.80 22.60 1,755.00

[trapperjez] 06/2/2012 09:05

Was thinking of buying some more but seems a bit of spike today.

[hosede] 05/2/2012 12:54

Moneyweek also tipped FGP. Interesting how their two charts look so similar since end of 2008 and particularly how they've underperformed the FTSE especially since this July. When the index crashes (Greek default?) and all the cyclical miners etc. tumble, these could be good places to hide

[trapperjez] 04/2/2012 19:01

Interesting recommendation in Moneyweek by Societe Generale giving intrinsic value of £580m or £4/share. Divi is still over 6%

[aleman] 02/2/2012 11:15

Is the "in line" IMS enough to break the downtrend?

[bend1pa] 26/1/2012 08:12

As you say most high yielders are really out of fashion, but that's fine by me. At least I can find somewhere to park my savings, and the yield on DCG is reasonably safe for the next year or two. But their businesses are dominated by milk distribution which is acting as a drag on the company's profitability. Somehow they are going to have to lessen their dependency on milk, or eventually DCG will go the same way as Unigate did years before them with ever dwindling share price and divs. I see DSG below £3 before this year is out.

[sludgesurfer] 22/1/2012 16:43

I'm sure you're all avid readers of the "Dairy Reporter" but for those who aren't I recommend it. The winter nights' just fly by :-)

Dairy Crest could be next, analysts hint, as fat of Wiseman deal chewed over

[aleman] 19/1/2012 13:54

Bought a few of these back. It's a cheap price for such a steady company. Amazing how some of these yield stocks are so out of fashion when cash returns don't even meet inflation.

[mazarin] 04/1/2012 08:07

- duplication -

[mazarin] 04/1/2012 08:07

Usual drop reflecting dividend as it goes Ex-Div today on opening this morning. This needs some encouraging news to get it moving north imo

[fergy4] 11/11/2011 11:51

Nice set of solid figures and a super Divi.

[muffinhead] 19/9/2011 17:00

stocastics divergence on monthly chart

[rcturner2] 05/8/2011 21:01

Looking at FWEB DCG AZN VOD.

[rcturner2] 05/8/2011 21:00

VOD is on my radar and have been hoping to enter at 150p.

My solid dividend stocks are AV. IRV APF ICP.

Then I have a host of AIM oil and gas stocks which have all tanked!