Investec upgrades Dairy Crest after weak share price performance

It noted the share price has been weak since mid-June and pointed to a 4% dividend yield. However, Investec attributed the target price reduction to a small change to the profit mix and adjustment for current peer multiples.

Commenting on the company’s interim statement on Tuesday, the brokerage said it has reported a solid start to the year, with a strong cheese performance offsetting margin pressures in butter from the sharp rise in cream prices.

Dairy Crest said earlier on that trading in the first quarter was in line with expectations and the company's outlook for the full year remains unchanged. In a statement for the three months to the end of June ahead of its annual general meeting later in the day, the group said that combined sales of its four key brands - Cathedral City, Clover, Frylight and Country Life - are 7% ahead of the same period last year. Cathedral City, Clover and Frylight have all grown strongly but Cathedral City has seen the strongest growth, with volumes up 15% on last year.

Dairy Crest pointed out that cream prices, which determine input costs for the butter business, have risen "substantially" in the first quarter, which will put pressure on margins in the butter business. In addition, the group the reduction of its promotional activity on Country Life is adversely impacting volumes but mitigating some of the margin pressure.

At 0915 BST, the shares were up 4% to 579p.