Jefferies downgrades Dairy Crest on valuation

Jefferies downgraded Dairy Crest to ‘hold’ from ‘buy’ on valuation grounds, following confirmation of the Dairies unit sale and last week’s first half results.

“DCG is on course to be a more profitable, faster growing, cash-generative business. Against which, the shares are up 45% since the Dairies exit was announced. We believe DCG remains an excellent core holding in the UK Foods space, but expect share price progression more in line with earnings from here.”

Jefferies said its 640p price target reflects Dairy Crest’s prospects as a standalone business.

But DCG is now an arguably more biddable entity, it said, with resultant market speculation around a take-out.

Jefferies reckons large grocery multinationals, European dairy players and financial buyers might well be interested. However, it said there can be no guarantees and it is reluctant to bake this formally into its valuation at this stage.

At 1118 GMT, Dairy Crest shares were down 2.1% at 600p.