Share Name Share Symbol Market Type Share ISIN Share Description
Robert Wiseman LSE:RWD London Ordinary Share GB0007442014 ORD 10P
  Price Change % Change Share Price Shares Traded Last Trade
  +0.00p +0.00% 389.75p 0 06:30:28
Bid Price Offer Price High Price Low Price Open Price
0.00p 0.00p - - -
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Food Producers 917.5 34.4 39.0 10.0 281.72

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Date Time Title Posts
15/2/201209:32Robert Wiseman Dairies77
20/7/200616:10Is RWD the Cinderella of the Dairy-3?24
28/3/200217:44Is RWD the Cinderella of the Dairy-3?-
22/3/200008:35Wiseman-Unigate deal?-

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jazz319: Bought these at 366 after a huge drop in share price which I thought was overdone in the extreme. I thought it was a good well run company with steady dividend payment. Didn't take into account the large supermarkets ability to screw prices into the ground. Silly me should have seen that one. Muller gives me a very welcome out, at a small profit, of what was looking like having to be a loss taken on the chin. Sad though another good UK company going and am going to miss all the trucks painted like cows. Lovely idea! Where to go next I ask?
haywards26: Be interesting to see what region of share price is being discussed. I would hope 3.50 as a bare minimum!!
ygor705: This share interests me. RWD now have 40% of the UK liquid milk market and it operates very efficiently. To me, this may mean that the supermarkets are getting close to the point where they cannot do without them .....a view perhaps supported by the recent price increase announcement. The balance sheet also looks strong. The negative side of the RWD equation are the cost pressures in an inflationary environment and its ability to pass these on to the customer via an unforgiving supermarket environment. The market is undoubtedly reacting to this issue. The interesting variable for me is what is happening in the international milk products market. Butter prices are sky high and there is an increasing demand for cheese from China. The old Milk Marketing Board always maintained a milk processing capacity to turn excess milk capacity into butter or cheese and then sell it into the EU under intervention rules. A slightly modified opportunity appears to be opening up for RWD in international markets and I'm watching for an announcement of some capex spend on basic butter and cheese processing capacity. The balance sheet can stand it. The share price is at a 5 year (at least) low and the yield is 6% plus. Maybe not time to rush in but certainly one to buy on weakness.
masurenguy: Stuck between a rock and a hard place: Robert Wiseman Daries Introduction Robert Wiseman procures, processes and distributes milk in the UK. It claims to supply 1/3rd of milk consumed in the UK, can supply milk to 100% of postcodes in Great Britain and holds a market share of roughly 40%. The share price took a 30% hit back in September 2010 and hasn't really recovered since. RWD has been already been looked at by Cautious Bull, UK Value Investor and Mark Carter. As with most value situations the reasons are quite legitimate as the company has seen its margins come under severe pressure. The reasons for this are probably quite involved so we will leave this discussion till later. What is worth mentioning at this stage is that since 1996 the company has grown revenue in every year. Any problems have always expressed themselves through margins and, more specifically, within the cost of goods line. Indeed, since 1996 revenue CAGR has been 12.9% but COGS CAGR has been 13.3% but this trend of faster COGS growth only emerged after 2008. As value investors, we have to pick carefully through lots of companies separating those that are fundamentally broken from those that are experiencing some cyclical trouble . With RWD, the situation may or may not be cyclical but it is certainly the most threatening period since the company's flotation in 1994. What this means for valuing the company is that we have to take quite pragmatic fashion. Historical statements are relevant but we will have to take a closer look at industry factors. Often this is difficult but we have a wide range of useful data available on the internet and Parliamentary inquires by DEFRA give us some insights into what people in the industry are thinking about. Operating Metrics From the above tables, we can see that, apart from a blip in 2009, the past five years have been tremendously good for RWD. What we notice is that the company relies on turning its operating assets over lots of times on very thin margins. In terms of operating assets, we see that the company has increased assets by £20m in the past five years but revenues have grown by some £300m. What is interesting is that we would expect the processing part of RWD's business to be fairly capital intensive, it involves machines and factories after all, so we would expect operating assets to trace movements in revenues fairly closely. What we find looking at the historical PPE turns is that this has broadly happened as revenue per dollar of PPE has grown from around £2.50 in 2001 to nearly £4 in 2011. However, this trend has slowed significantly in the past five years. Instead, the improvement in net operating asset utilization has come from its growing creditor balances. If revenue growth resumes there will probably quite a large improvement in NOA turns. Looking to margins, we can see that these have slid slightly in the last year. The competitive position of RWD is quite complicated as it stands between the retailer and producer. As we can see though, the most important trend has been that big increase in COGS since 2007. The most important of these recent trends are the increasing prices of raw materials such as fuel and resin used in packaging, a price war by retailers and rising operating costs for farmers. The competitive dynamics are slightly more complex than this but this is the basic outline of the situation. We also see that the company has worked on taking S&D costs out of the business and these are now at all time lows although this has had very little impact compared to the move in COGS. The company is also committed to being environmental sustainable. Usually, I am fairly skeptical of these programs as they seem to have little effect on the underlying business. For RWD, this appears to be quite different as the environmental program seems to be focused on taking significant costs out of the business. Financial Condition From the second table, we can see that net debt has fallen to around £5m and the EBIT/Interest expense multiple is at 35x, well above the three year average of 29x. I think reducing this was probably a pretty good use of cash as having a lot of debt while the industry goes through a potentially difficult period isn't too helpful. The dividend has also been pretty generous in the past five years. I think this is perhaps slightly less fortunate as some of this cash may be needed to invest in margins if pricing continues to be difficult. Recent Trends/Competitive Position On first glance, the industry seems quite simple. RWD buys the milk from farmers, the milk is processed, it is sold to supermarkets. However, the industry is slightly more complicated than that. First, I will discuss what how the industry structured, what this means for the competitive positions of the groups involved and, particularly, for the processors. I will follow this with discussing some of the more recent trends in the industry and then ask how RWD fits into these trends. The most important factor in defining industry structure is probably the use of "direct supply" contracts. These are contracts between a producer and either a processor or a processor/retailer duo. The contract locks a producer into receiving a certain price for milk over a fixed period of time (usually 12 months but RWD offers 3 months). These contracts make up the majority of supply for processors however, some milk is supplied by the three producer co-operatives: First Milk, Milk Link and United Dairy Farmers. The prevalence of "direct supply" contracts obviously introduces a significant amount of rigidity in the industry. Farmers will be stuck with a price for a certain length of time while they could be facing volatile raw material costs. For processors and retailers the situation is slightly more favorable. Processors gain some certainty about margins and capacity however, they still face rising raw materials (fuel and resin) and are vulnerable to pressure from retailers. Retailers began making these contracts directly with farmers in 2004 to secure their supplies for milk. Retailers usually have to pay a premium of around a penny on each litre to secure these contracts. Out of all groups, they probably have the most to gain. One exception to this trend though appears to be Tesco's Sustainable Dairy Group who pay prices that move with changes in the farmer's cost of production. My rough look at the industry suggests that most farmers have direct supply contracts with processors. So the main effect of these arrangements is that we get pretty volatile margins for most of the participants. Recently, farmers have come under pressure with the rising price of raw materials (cows, feed, fuel and fertilizer) and it seems to be consensus that farmers are currently selling below their cost of production. The EU Commission recently proposed changes to the system of contracts to try to ease the pressure on farmers and DEFRA is currently collecting evidence from the main industry bodies about these proposals. So processors stand in the middle of this trying to make money from the spread between farmgate and retail prices. This can be extremely challenging as the factors determining these two prices are often completely different. In the first table, we see the farmgate, processing and retail prices since 2005. The gross margin for processors has stayed quite constant over the period moving from 30ppl to around 40ppl in April 2010. What is more noticeable is the increase in retailer gross margin from 40ppl to 60ppl towards the end of the period. Interestingly, the margins continued to increase after the supermarkets/processors admitted price fixing in late 2008. Unfortunately, the processing prices appear to get updated annually so we can't tell what has happened more recently. It isn't difficult to see though that the current situation is quite troubling. The trends in production and consumption are somewhat harder to come by. From my reading about the industry, it appears that production over the past five years or so hasn't been too good however, there has been some recovery at the start of this year. The data would suggest the same, production through the start of the year has been up quite a bit from production in the previous two. However, I am not too sure about the interpretation of some of the data. Consumption is also quite tricky. DEFRA publishes consumption based on per person per week however, the raw data isn't included. DEFRA's figures show that consumption of milk per person per week has been declining slowly for quite a while. We see that retailers cut the price of milk massively in mid-late 2010 and farmgate prices have slowly crept up with the large increases in the cost of production. When discounting, retailers often focus on the everyday items to draw custom in and this appears to be what has happened here. As mentioned earlier, the pressures on farmers have been through, substantially, all the raw materials they use in production. For processors, this means a far slimmer margin as they buy at a higher price and sell at a lower one. It wouldn't be surprising, looking at the above table, that margins had slimmed to around 15ppl which is far lower than any data I have going back to 1999. Focusing on RWD and its position in the industry we can see from the table above that its probably the industry leader with around 40% of the share of volume amongst major retailers. At the DEFRA inquiry, RWD stated that its market share of the liquid milk market was around 31%. As mentioned already, RWD is suffering from the increase in resin and fuel costs. The company also highlights the fairly flat bulk cream prices. Whilst Arla and Dairy Crest utilize the "leftovers" of the milk processing operations to make butter and cheese, RWD sells most of it on (it does produce small amounts of cream). Interestingly, MP Neil Parish questioned this strategy in the DEFRA inquiry asking if the company had any plans to extend beyond liquid milk and the company representatives affirmed the strategy of sticking with processing liquid milk. Another factor the company highlights is the prices it offers farmers. The company offers the shortest resignation period and highlights the low levels of actual resignations. In the written evidence to the DEFRA committee it uses a fourteen year average of farmgate prices to compare itself to other companies which is perhaps slightly misleading as the market dynamics have changed considerably since then. Dairyco published a league table of all farmgate prices under aligned (i.e with a supermarket which offer the premiums) and standard contracts. These tables suggest a slightly less favorable picture (and compared to slide 12 in the recent trading update) with its standard price being under Arla by 0.02ppl and 1ppl or so below smaller operations like Wyke. Its aligned contracts are certainly competitive but the Tesco Sustainable Dairy Group contract leads at 29.72ppl. The company argued at the DEFRA inquiry that basing contract price on farmer's cost of production (as in TSDG contracts) wasn't realistic as the prices for each industry participant was determined by different factors. Whilst this certainly is true for farmgate and retail prices it is less convincing for processors which are, to a certain extent, stuck with the spread. However, I think RWD's claim that they run their business on a mutual trust with farmers and that this works appears to be a legitimate claim. My view of RWD's position is that it has built its relationship carefully with farmers, it has concentrated on what it does best and I think that although the current times appear difficult the company seems to have an effective strategy to maintain its position. It has certainly shown good faith by investing in margins over the last few years and this should build up some goodwill with its customers and suppliers. The most important recent event though has been the decision of supermarkets to price more competitively and if this continues it may make RWD's position difficult as it doesn't have much of a fallback strategy and supermarkets have been aggressive in securing supply. Valuation The two tables above show RWD's historical valuation and we see that RWD is pretty much right at the bottom of the range since 2004 (the blue broken line is the current valuation). This is a fairly good sign but can be explained by that fact that processor margins are probably at all time lows. Looking to my usual model, I am again going to have to over-ride it and input some more creative scenarios for the margin figures. Margins are going to be the focus of this analysis and I am going to assume in all cases revenue growth of 4% over the next five years, constant net debt and the same growth in net operating assets as the past five years. Whilst these figures probably aren't accurate, they are conservative which should be important in preventing any serious errors. Base Case – Margins fall to 1.5% and add 25bps every year over the next five years. Worst Case – Margins fall to 1% and add 25 bps every year over the next five years. Best Case – Margins fall to 1.5% and add 100bps for the next three years until they reach the high of 4% (the high of the past five years) and stay at 4% in the last year. Conclusion The milk industry is a tough and competitive industry to be involved in. However, it is interesting that most sides in the current Parliamentary inquiry still relished the competitive challenge and transparency in the industry at the moment (especially relative to the old Milk Marketing Boards). Processors are, at the moment, stuck between a rock and a hard place being pushed both by producers, who are probably selling slightly under cost (some suggest around 29ppl) and retailers, who have been engaged in something of a price war since the end of last year. However, these factors, although damaging, are cyclical. RWD is a concentrated operation that has built up enough market share and goodwill with its suppliers and customers to weather this period. It has focused on taking fixed costs out of the business meaning if COGS improves margins will spring back quickly, it has worked to push its creditors meaning NOA turns will spring if revenue growth improves only slightly and it has reduced debt. The latest price figures suggest that RWD is probably still getting squeezed which means caution should still be exercised but pressure may ease up with the seasonal trends in consumption later on in the year. This positive view is obviously interesting considering that RWD is undervalued, at most, in the base case scenario by around 15%. However, what I see going forward is fairly limited downside and a significant upside if things improve slightly. At this stage, risk has to be limited as the situation with margins still is uncertain but the potential for good gains is definitely present.
bostonborn: I have just made my first purchase of a few shares in RWD. They look to be a very solid company paying a good reliable dividend; expertly managed, with the share price hopefully close to a low point. Having said that I'm not sure where the future growth is going to come from at this point in time; however I'm happy to trust the past track record of the management and give them at least a couple of years and see what develops!!! Who knows they might diversify into other products or they could buy up Dairy Crest, if they ever get the opportunity!!!
haywards26: Interesting and positive article. But I still struggle to see any drivers for increased share price appreciation currently. The current rising inflation alongside job cuts and generally stagnent wages the UK are ingrediants for a tough economic market place in which to be operating, especially when cutomers are large (powerful) supermarkets, who are in price battles and trying to squeeze every possible pence out of their costs.
masurenguy: Robert Wiseman: A modern milkman with a lot of bottle Location, location, location is the key to the dairy business, the Robert Wiseman chairman tells Sarah Arnott Robert Wiseman is not the kind of dairy company that has its own herds. The nearest thing to an actual cow at Bridgwater is the distinctive black-and-white Friesian pattern on the endless lorries to-ing and fro-ing in the loading bays. In fact, the only sign of the product at all is the faintest tang of dairy in the air. The plant is a network of gleaming tubes, vast machines and fast-moving conveyor belts, processing around 10% of Britain's daily milk consumption and about 9 million litres every week. By a coincidence of lead times, Bridgwater is at full whack just as the dairy industry is facing more than usually straitened times. The pressures in the food industry are always the same, with supermarket customers on one side fighting to keep their prices down, and volatile global commodity markets threatening a spike in costs on the other. The difference at the moment is in intensity. Steadily rising oil prices – sent to more than $100 this month by the political crisis in Egypt – are a double hit for Robert Wiseman, the 1,500-strong truck fleet and plastic bottle requirements adding £8m on to the company's costs with every $10 rise in the global price. Meanwhile, two of the biggest supermarkets, Asda and Tesco, have committed to permanently lower milk prices, with the rest expected to follow. And soaring farm-gate prices have seen both Robert Wiseman and rival Dairy Crest increase their payments to farmers from the start of next month. "It is particularly ferocious at the moment," Mr Wiseman admits in a broad Glaswegian accent. "There are 60 million people in this country, and they are all looking at what they are spending their money on." Robert Wiseman dairies is already feeling it. Since floating on the Stock Exchange in 1994, massive expansion plans have seen the company's market share rocket from 2% to 32%, with financial results to match. But last September, the group warned that this year's profits will be down by £7m, and next year's by £16m, wiping nearly a third off the share price in a single day. "It's disappointing to see profits fall, of course," Mr Wiseman says. "As consumers find things tougher, our big retail customers try to buy better, and as they fight for share of a very competitive industry we are caught in the backlash." But the dairyman is far from gloomy. "We've got to get in there and compete," he says, with genuine relish. "We're still making money, we're very efficient, we've got a committed workforce, and we really are quite good at what we do." There are some tough decisions to be made. As part of an organisation-wide efficiency plan, some 3,000 projects, from mobile phone contracts to fleet procurement, are under the microscope. And two of the company's smaller facilities – one dairy and one depot – are under consultation with a view to possible closure. "When you come under pressure then you sit at the board meeting and say there are no sacred cows," Mr Wiseman says. "No decisions have been made yet but we've got to look at these things." When the company listed in 1994, the family used the £14m raised to pay off their mortgages and set about turning the local doorstep-focused milk company into a national titan supplying shops. The first stop was Manchester – "because our drivers could get there and back in a single shift" – then Leeds, then south again to Wolverhampton and Droitwich. Now, 17 years later, Robert Wiseman has seven dairies and 14 distribution depots, from Aberdeen to Pensilva, in Cornwall, all carefully located along a spine running between the milk-producing lands of the west and the motorways connecting them to the rest of the country. It was a canny move, establishing the most modern dairy network in Britain. And at £480m in capex, it has not been cheap. But the Wisemans used profits and capital raisings to fund the expansion, leaving the company in good shape now, even with the recent profits warnings. While rivals are feeling the pinch from vast debts, yawning pension deficits, and outdated facilities dating from the monopolistic days of the Milk Marketing Board, Robert Wiseman has modest debts, an obsession with efficiency, and Bridgwater. The new dairy is not just big. It is also green and highly efficient, part of the company's five-year programme to its environmental impact on measures covering everything from fuel consumption to landfill waste to bottle design. The biggest innovation at Bridgwater is the on-site effluent treatment plant that cuts water usage by 200,000 litres every day – a scheme with potential to be rolled out in the group's other facilities if it proves effective. This is no marketing gimmick, this is pure business, Mr Wiseman stresses. "The environmental targets are not some fluffy bunny idea," he says, almost angrily, pointing out an empty acre of land behind the Bridgwater boiler house which would have had a biomass electricity station on it, only the company could not make the economics add up. "If we get it right then it will pay us, but the payback has to be there," Mr Wiseman says. "Environmentalism will only work if it is good for shareholders." Alongside the issue of running costs, turnaround time is vital. The milk goes from cow to factory in less than 24 hours and will be pasteurised, separated, bottled and shipped within another 48. Mr Wiseman likes to describe the company as a logistics business that happens to deal in fresh milk. In such trying times, such a focus on efficiency, and modern facilities like Bridgwater, are a central competitive advantage, he says. "Operators with old dairies are less efficient, they are built the wrong way and in the wrong places," Mr Wiseman says. "The industry has got to go forward, it's survival of the fittest, and we're in a great position."
masurenguy: Jon - I'm looking for RWD to move back above 450p again - it is only a matter of time in my view - it may take a further 12/15 months but in the meantime there is a solid dividend yield at the current share price. timbo - I also looked at DC since they are more diversified both in terms of customer and product mix and have slightly higher net margins too. DC are principal milk suppliers to Asda and Morrison and no customer exceeds 10% of their overall sales. RWD major with Tesco, Sainsbury and the Co-Op who collectively account for circa 60% of their sales. Whilst this might make them appear vulnerable on the surface, the other side of the same coin is that they are a dominant milk processor with much more capacity than anyone else and therefore hold some strong cards too in the overall milk market demand - supply paradigm. RWD also have a much stronger balance sheet with net debt of just over £20m while DC remain highly geared with net debt of more than £300m. In the current climate I feel much more comfortable holding RWD !
spob: 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.
spob: from Ft Alphaville markets live blog today NH the big news todayNH is milkBE It is indeed. Huge profit warning from Robert Wiseman.BE Blaming competition.NH milk warsNH Asda cutting pricesNH and Tesco followingNH I'm kicking myself because someone pointed this out on MondayNH and I had meant to mention itNH not that I thought it would knock 30% of the share price of Robert WisemanRobert Wiseman Dairies PLC (RWD:LSE): Last: 353.50, down 132 (-27.19%), High: 370.00, Low: 330.10, Volume: 3.90mBE Actually, I did make a couple of light enquiries about this yesterday.NH andBE As, conveniently, Dairy Crest had a big meeting for investors and scribblers.NH they didBE And the feedback was: "nope. Nothing happening here."NH Foston visitNH ActuallyNH there's a note from RBS on thisNH have a lookNH just goes to show that when a management team saysNH that won't affect usNH or the slowdown won't affect usNH because people will always need to drink milkNH it's time to sellNH NH No major surprises came out of the Foston site visit, but 'milk&more' looks to be doing better than expected and there is as yet no profit impact from multiple retail price competition on liquid milk. Prior to the 1H trading update at the end of September, we reiterate our Buy recommendation and 440p TP.NH here's the key bitNH As has been widely reported in the trade press, the UK multiple retailers are currently heavily promoting fresh milk. Dairy Crest management observed that retail prices are a matter for retailers. Thus far, promotion has been most intense at retailers where the company has little or no exposure. If milk remains a promotional battleground for an extended period, this could change, but we believe promotions are so far having a minimal impact on Dairy Crest. Overall, management's body language seems confident prior to the IMS expected at the end of this month. We see the shares, on 8.2x FY11F PE, as cheap given the positive progress the group is making across a range of fronts.BE Oh dear.BE Fast forward to today and RBS, who bear in mind are shop to Dairy Crest, are sending around this.BE Dairy Crest* Wiseman profit warning implications Dairy Crest's shares have fallen 8% today in the wake of Robert Wiseman's profit warning. While we understand the market's caution, we believe this is an overreaction, as we believe trading remains on track and the risk to Dairy Crest's profits is materially lower than is the case for Wiseman. BE Robert Wiseman profit warning Wiseman this morning issued a profit warning, indicating that its FY11 profits are expected to be £7m lower than it had previously anticipated, while its FY12 profits will be £16m lower, equivalent to EPS reductions of 16% and 33% respectively. These have been attributed to the "recent intense competitive pressures across all sectors of the market", a reference to the impact of the aggressive promotional activity being undertaken by some retailers on UK liquid milk. However, we believe the overwhelming cause of this profits shortfall is a reduction in its margins with Tesco, which accounts for 50% of its major multiple volume, as a result of recent renegotiations. It had previously successfully agreed terms with its other two major retail customers, Sainsbury and the Co-op, hence it is reasonable to conclude that Tesco is entirely responsible for this profit warning. BE Readthrough for Dairy Crest We believe Wiseman's problems should not impact Dairy Crest's trading performance. DCG does not supply Tesco with liquid milk. In addition, earlier this year it reached a three-year supply agreement with Sainsbury and negotiated a new contract with the Co-op, in total covering around 45% of the group's major retail milk volume. While the group is not in a position to discuss the specific arrangements it has with its other key customers (Morrison, Waitrose and M&S), we do not believe these carry any material risk to the group's profitability. In addition, Wiseman's profit warning highlights the benefits of DCG's broadly based portfolio, with retail milk accounting for an estimated 21% of operating profit in FY11 vs 100% for Wiseman. Hence we believe any profits shortfall in DCG's retail milk business would have a materially smaller impact on group profits. By way of illustration, a 33% fall in its retail milk profits in FY12F would lead to a 7% fall in DCG EPS. BE Weakness provides a buying opportunity We can understand the market's nervousness here, but believe the forthcoming 1H update should provide considerable reassurance re the group's prospects. A 2011F PE of 7.3x and well-covered yield of 5.9% offers significant medium term upside.NH 24 hours is a long time in milkNH and I don't follow the argumentNH surely Sainsbury will followNH and MarksNH annd the restBE True. The point of a defacto monopoly sector is that they all move together.BE And, usually, the suppliers get crushed.NH just back to Robert Wiseman for a momentNH the back story here is that on MondayNH Tesco matched Asda's promotion on milk which reduced the price of a 4 pint poly from £1.53 to £1.25NH equivalent to a 12ppl reduction in the shelf price, apparentlyNH and that triggered today's warningNH that operating profits this year would fall £7mNH and a lot more next yearNH anywayNH this note from InvestecNH broker to RWD sums it all upNH Robert Wiseman has issued a trading update for the 1H10 period and whilst this states that the 1H performance is in line with expectations, the outlook for the second half is likely to be impacted by the results of recent competitive pressuresNH Volumes across this process have been retained so we still anticipate the group processing something in the region of 1860m litres this year, but intense competition has resulted in lower selling prices and RWD expects this to impact on FY11E profits to the tune of £7m. This would reduce our old forecasts (shown above) from £43m to £36m and EPS to 36p (-16%). This equates to a FY pence per litre margin of 2p. Assuming no improvement in margins, the annualised impact on FY12E is £16m and this would reduce our forecast from £44m to £28m, with EPS of 28p (-36%). The margin on this basis is 1.5ppl which is the lowest we have seen from the group to date and a level at which the group would question the benefits of further sizeable investment projectsNH RWD has previously reported successful conclusions to negotiations with Sainsbury and the Co-op and these have been factored into our forecasts. Hence, we can only conclude that the main issue has arisen post a review conducted by Tesco. On Monday, Tesco matched Asda's promotion on milk which reduced the price of a 4 pint poly from £1.53 to £1.25. This is the equivalent to a 12ppl reduction in the shelf price. Additionally, Tesco is announcing that it will be increasing the price it pays to farmers by 1.28ppl.NH This is clearly very disappointing for shareholders and RWD management alike and for the next 6 months there are no obvious catalysts which could change this. However, we should be aware that there are two retail accounts due to re-tender in the coming year, Asda and Morrison, neither of which RWD deals with presently. If there are any repercussions for pricing on these accounts it will not impact on RWD, but it will of course be looking to see if there are any volume opportunities for them in this process.NH who knewNH milk could be so interestingBE Hm. On a day like this, I guess "interesting" is a relative term.
Robert Wiseman Dairies share price data is direct from the London Stock Exchange
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