What with Tesco, Cranswick and to a lesser extent, Marston's, I already feel a significant tug towards the broad 'food' sector. Dairy Crest (LON:DCG) continues that theme, but first I should probably address why I'm looking at that common sector. The answer is, simply, that I'm not, really. Tesco, Cranswick, Marston's and Dairy Crest could all be considered 'value' for different reasons. It'd be disingenuous for me to say there is no broad market feeling about that group that is probably hampering their share prices, but they are all fundamentally different businesses - the drop in margins that is coming right down the chain may well be hampering the share price, but is hardly the sole reason I chose to look at these businesses. There is a good degree of visibility in food spending and many of the businesses involved have long track records. That always interests me.
I'll cover Dairy Crest in two posts, and in this one I'll aim to both give an overview of the business and look backwards at historical trends in the hope of uncovering whether the current share price is undervalued. The holy grail of investing, right there! Moving straight on to the graph, we see that operationally the business is fairly solid; revenues and operating profits are both stable on a slight upward trend. Net profit has dipped in the last couple of years, but this is brought about - sadly - by a pension plan's fluctuations. I hate these things. More specifically, 2008 & 2009 saw a surplus in that plan bringing in an extra £7m and £10m of revenue respectively, which was a feat not repeated either this year or last.
Consistenency is the name of the game in operating terms, then, and that's confirmed by an even longer timescale graph I've included below left. There may be a small mountain range in operating profits between '02 and '07, but note that unlike many companies they haven't had a year of losses - or anywhere near! The other thing that struck me as I flicked through 10 years of reports was the enduring nature of their big three brands. Page 1 of their 2001 report features a scene with Dairy Crest's three big winners - Clover (spread), Cathedral…
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