Robert Wiseman Dairies Share Discussion Threads

[spob] 17/11/2010 04:40

Robert Wiseman story turns sour

Created:16 November 2010Written by:John Hughman

Robert Wiseman saw its shares take a beating in September, as the story turned decidedly sour when it warned investors that profits this year and next would be substantially below expectations as a result of intense competition in the liquid milk industry.

The warning was, it seems, the result of a price war raging between large supermarket customers, which saw the price of a four-pint carton fall from 153p to 125p, thus structurally lowering industry margins. Wiseman said that second-half operating profits would be £7m lower than forecast, but the pressure seems to have taken a chunk out of first-half operating profits, too, which fell 2.7 per cent to £21m even though volumes climbed 8 per cent.

Although Wiseman was able to report an additional 35m litre per annum contract with Tesco, analysts are now worried that the group will struggle to generate adequate returns from its new 500m litre Bridgwater dairy, which it completed in the period. There are also concerns that Wiseman's plans to offset margin pressure through cost reductions could prove challenging, especially if there is any reduction in the current high bulk cream price.

Broker Evolution Securities expects pre-tax profits of £36m and EPS of 36.1p in the year to March 2011, falling to £29m and EPS of 29.1p the following year (from £47m and 46p last year).


ROBERT WISEMAN DAIRIES (RWD)

ORD PRICE: 326p MARKET VALUE: £230m
TOUCH: 325-327p 12-MONTH HIGH: 536p LOW: 311p
DIVIDEND YIELD: 5.5% PE RATIO: 6
NET ASSET VALUE: 219p NET DEBT: 14%



Half-year to 2 Oct Turnover (£m) Pre-tax profit (£m) Earnings per share (p) Dividend per share (p)
2009 424 21.0 20.8 5.75
2010 453 20.2 21.8 5.75
% change +7 -3 +5 -
Ex-div:29 Dec

Payment:03 Feb




IC VIEW:FairlyPriced

Robert Wiseman's share price plunge leaves it lowly rated and offering a chunky yield - but volume growth will slow in the second half alongside input cost inflation, and the shares are fairly priced.

[jacks13] 16/11/2010 17:02

Salpara
On the other hand the dividend is currently covered 2.6 times (Apr'10) although this would be eroded if earnings were to fall.
The bulk of its large scale capital expenditure is behind it for the foreseeable future so it is, compared maybe to Arla who is currently building a new plant, well placed to survive a period of reduced earnings (a price war) and maintain dividend.
I'm inclined to agree with you however that the share price will remain depressed in the medium term (6 to 9 months).

[salpara111] 16/11/2010 09:26

I tend to view stocks on a 6-12 month hold so not a trader but not a long term investor.
Currently I hold IRV which has a well covered divi at 9% and opportunity for 50% share price upside so I will keep my money there at present. IRV is interesting in that it is in a sector that analysts love to hate at present, hence the very low rating, but has remained strongly profitable through the cycle.
RWD is a pretty safe punt at present but I suspect that it may take some time for it to turn and the divi is not that spectacular and may well have to be cut next year if the trading environment does not improve.

[jab118] 15/11/2010 14:41

hope your right there phil ;-)

maintained divi in Feb, so looks like good value just need some investors that's all....;-)

As falling from this price, I say if it was going to happen it would of been today and I would have been very happy in averaging down ...;_)

[phil140158] 15/11/2010 13:46

Salapara - I guess it depends on whether you are looking for an investment with a good dividend (which looks as if it wil be held at last year's levels) and long term prospects of capital growth or a share to trade. I reckon now is the time to get on board, I can see the share moving with the market overall, but not going any lower than this!

[salpara111] 15/11/2010 09:21

I was waiting for this statement and I guess it is pretty much as expected.
The beauty of this stock is that anyone can tell when it is time to invest....I will wait for the price of my weekly 4 pint container to go back up again!
In the immortal words of a well known Meercat....Simples!
If you look at the long term chart, the last time the share price took a big dive it took about a year before it broke out of the doldrums again. We are now about 2 months into the current slump so I cant see any reason to get on board at present.
I will keep it on my watch list as it seems to be a decently run company with low debt.

[masurenguy] 15/11/2010 07:52

Interesting article in yesterdays Sunday Herald which can now be read with the hindsight of todays interim results.

Wiseman upping the ante in milk wars

Robert Wiseman Dairies will begin its fightback in the supermarket milk price wars tomorrow when managing director Billy Keane signals his determination to drive volume growth at the expense of his major rivals. He will use the East Kilbride group's interim trading presentation as a platform to stress that a strong balance sheet and industry-leading efficiency should give Wiseman an edge in bidding for new business against main competitors Dairy Crest and the Scandinavian-controlled Arla group.

His new aggression follows an earlier warning that cut-throat competition would reduce profits by up to £23 million over the next 18 months, leading to a slump of more than £100m in Wiseman's stockmarket value. It is understood the group was forced to slash the terms of a new contract with Tesco – its biggest customer – after Dairy Crest attempted to muscle in. Wiseman had been putting in a resilient performance ahead of the Tesco move and is expected to announce virtually unchanged profits of around £20m for the first half of the year. The deal, though, could result in a drop in total group profit margins on milk sales from 2.99p a litre at the end of last year to a wafer-thin 1.7p. However, the first opportunity to make up lost ground will come when a 400,000-litre contract with Morrisons, which has been shared by Dairy Crest and Arla, comes up for review in March, while Arla's 550,000-litre agreement as sole supplier to Asda is due for renegotiation in the summer. But both Asda and Morrisons will follow Tesco in trying to drive down terms as they struggle to compete with cut-price operators such as Lidl and Aldi.

The major supermarkets are eager to show that farmers are not losing out in the price wars. Tesco actually increased its payments to farmers by 1.28p a litre last month although latest industry figures show that shelf prices in the top four supermarket chains fell by an average 12% between July and October. Analysts say the dairy companies have little choice but to accept reduced margins as a result of this public relations exercise and analysts expect Wiseman profits to fall from £47m to £38m in the current year with a further dip to around £28m in prospect thereafter.

[masurenguy] 15/11/2010 07:12

RNS Number : 1334W
Robert Wiseman Dairies PLC
15 November 2010

Financial Highlights

Sales volumes up 8.0% (2009 : 11.3%)

Turnover increased by 6.8% to £452.8 million (2009 : £423.9 million)

Operating profit decreased by 2.7% to £21.0 million (2009 : £21.6 million)

Earnings per share increased by 4.7% to 21.82p (2009 : 20.85p)

Adjusted * earnings per share decreased by 3.2% to 20.18p (2009 : 20.85p)

Interim dividend of 5.75p per share (2009 : 5.75p)

Net debt lower at £21.5 million (September 2009 : £26.7 million)

*The figures are adjusted to eliminate a one-off deferred tax credit of £1.1 million in the current period arising from a change in the rate of corporation tax from April 2011.

Operational Highlights

Tesco volumes to increase by 35 million litres per annum

Sales of branded products, Fresh'n'lo and "the One", up by over 100% and 30% respectively compared to previous six month period

Bridgwater dairy capacity increase to 500 million litres per annum, completed on time and within budget, taking Group capacity to 2 billion litres per annum

Price paid to Wiseman Milk Group increased by 0.4ppl in July 2010

Planned recruitment of up to 70 additional dairy farmer suppliers, increasing proportion of direct supply to 70% of total requirement

Planning permission obtained for expansion of milk reload depot at Market Drayton

Focus on operational efficiencies and margin improvement

Billy Keane, Managing Director, commented: "The Company is well placed to handle this period of intense competition. We have the best dairy and distribution network in the industry, headroom to accommodate future volume growth, a robust balance sheet, low debt and intend to maintain dividend payments in line with last year."

A number of our major contracts have been renegotiated and intense competition in the middle ground sector has reduced selling prices. While sales volumes have been maintained, margins across all sectors have been eroded. This intense competition has not abated, but we remain committed to maintaining our existing volumes. We continue to review our customer arrangements and will seek to implement improved prices whenever possible.

OUTLOOK

We are pleased with the performance in the first half, despite the difficult trading conditions we are experiencing. Downward pressure on selling prices across all sectors resulted in the disappointing revision of our profit expectations, announced in September. The Group is focused on improving margins and performance by reducing costs across the business, identifying opportunities to utilise the new capacity available and rebuilding profitability when circumstances allow. The Group remains confident in its ability to prosper in the longer-term. It has the best facilities in the industry, a strong balance sheet with low debt levels, a positive cashflow and an excellent customer base to service.

[jab118] 14/11/2010 18:19

Just asking guy, I like to know if anyones short or investing that's all, exactly the same as you, bought in on the last retrace for the first time. However, I think the mm's might mark it down again tomorrow with any further negativaty in their year end results. Which could give the share a healthy future IMO., as it would more than likely draw attention to new investors.

[masurenguy] 14/11/2010 17:29

Have no idea what the results or guidance will be tomorrow. Why on earth would you think that I was short on RWD ! I bought into RWD for the very first time after the share price fall following the trading statement on September 15th. I will consider adding further once I've had the chance to review the results and forward outlook tomorrow !

[jab118] 14/11/2010 12:33

So up or down tomorrow then guy me old mucker, or are you already short ? ;-)

[masurenguy] 14/11/2010 12:21

ROBERT WISEMAN INTERVIEW
I am happy to be a milkman in hard times

For a man who will put his head in the jaws of the City's lions tomorrow - knowing that last time he ventured forth in the Square Mile they savaged his share price by a third - Robert Wiseman is in ebullient mood. A warning in September that second-half profits would fall £7m short of expectations and that next year would also undershoot, wiped about £120m off Robert Wiseman Dairies' stock market value.

'That trading update was really disappointing,' says Wiseman, who would not comment on tomorrow's figures. 'But we did remain confident and I don't see any reason to change that. 'The worst thing we can do is panic. We just have to do the day job better than others and if that means margins are squeezed for a while then so be it. We've got a strong balance sheet, we've invested about £500million in the 15 years since we floated and we are sitting in a nice place compared with our peers. 'We are strong enough to sit it out until the market recovers.' When will that be? 'Remember you're talking to a milkman,' he laughs. 'But I'm not of the doom and gloom brigade. I think things will be better in 12 to 18 months.'

Wiseman admits that the supermarkets (Tesco is his largest customer) can be 'brutal' in negotiations but says, simply, that he just has to respond by making his own operations more efficient. 'Milk is always a key item, along with bananas, where they (the supermarkets) will compete,' he says. Many of his 5,000 employees own shares in the business and saw their wealth reduced with the profits warning. But Wiseman says: 'You could see the strength of their commitment - they got their heads down to push the thing on.'

Taking milk from 250,000 cows on 2,000 farms across Britain, the company can produce two billion litres a year. It is investing to reduce fuel consumption in its fleet and to use lighter packaging to help improve margins of between 2p and 2.5p per litre. 'In 1994 we had less than two per cent of the market. That is now more than 30 per cent and I don't see that growth can't continue,' Wiseman says. He sees the general economic situation as an opportunity because 'the deadwood will fall away.'

[haywards26] 04/11/2010 11:02

Yes same here. I liked the asset backing at GEMD, which underpins the share price. But I will not jump in now unless it falls back. Prefer companies with nice divi yields in addition to low p/e's hence my interest here.

[salpara111] 04/11/2010 09:59

Yeah, I was a scardy cat and did not get in before the rise.
Could have taken a quick 20% which would have been nice...now it will probably go to sleep again. Thinly traded stocks are difficult as they tend to move in fits and starts with long periods of hibernation inbetween.
If I was in GEMD I would probably hold for a while longer but I think I have missed the best of the action for the time being.

[haywards26] 03/11/2010 22:48

I am looking for 310 ish entry, don't want to be too greedy. Have you seen the recent share price action in GEM Salpara?

[salpara111] 03/11/2010 17:13

Still waiting for my 300 ish entry point.

Agree that long term this is a good buy but it could well be in the doldrums for 6/9 months before starting to recover.

[jab118] 03/11/2010 16:53

yeah i see ;-)

[phil140158] 03/11/2010 16:50

Disappointing fall in share price Anyone see the dairy article in Moneyweek this past Friday? They reckoned dairy was the agricultural sector to be in and significant increases in milk prices were just around the corner! When the time is right RWD will be a cracking share for an ISA - good divi and great chance of capital growth.

[masurenguy] 03/11/2010 16:29

Still slipping back despite last months Buy recommendation from Paul Hill at MoneyWeek !

[2magpies] 24/10/2010 08:50

phil

If PS was right everytime he would no longer be writing for a magazine!!

[phil140158] 22/10/2010 16:54

Dead right Boggle, Merryn Somerset-Webb has got to be one of the most depressing writers there is! Hope she's not like that at home!

[bogg1e] 21/10/2010 10:20

phil, i know what you mean, not all of thier tips are reliable, (although ive made enough from thier tips to cover the cost of the magazine for the next 20 years!) however i like moneyweek because they have always taken a somewhat contrarian and pessimistic stance (which considering the fact that the western world is on paper bankrupt that aint a bad stance to have), also i think they are good at calling the general direction of the markets. I believe they were one of the few trade mags to point out the imminence of the crunch before it happened in the first place. As for RWD salpa above is right, the share price aint going anywhere until the supermarkets stop screwing dairy farmers so they can have their ridiculous price war and charge a decent price on milk again.

[phil140158] 19/10/2010 20:15

Boggle - Moneyweek is a good weekend read, but I'm not sure of the realiability of Paul Smith's tips. He recently recommended taking profits on Aggreko but they've risen strongly ever since.

[salpara111] 19/10/2010 14:07

Even Waitrose is in on the act now!

Usually get my milk in there as they are a 2 minute walk from my door and I dont own a car....live in central London.

2 litre semi down from £1.53 to £1.25.

I guess that it will be pretty transparent when it is time to get into RWD and that will be when the price of milk on the supermarket shelves goes up again.

I am unclear why the supermarkets have chosen to do this as none of them have gained a competitive advantage, they are just now all at the same lower price point.

[jab118] 18/10/2010 09:55

Morning guy & Boggle... about time someone tipped us, I don't trend buy with any mags, but I find that Midas calls a few gooduns now again..