Damian McNeela, analyst with Panmure Gordon, said: “We think that this is a good result albeit just outside the bottom end of our £350M to £400M valuation range. As a reminder, St Hubert was acquired in January 2007 for about £248M.”
The sale price implied a ratio between earnings value and earnings before interest, tax, depreciation and amortisation (EBITDA) of 8.3, he added.
The proceeds of the transaction were expected to be used to reduce net debt. But it would also offer the flexibility to pursue the UK acquisitions predicted by Shore Capital yesterday.
Transformational effect
Describing the sale as having a “transformational effect on the balance sheet”, Panmure Gordon upgraded its hold recommendation to buy and increased its price target to 385p.
Shore Capital’s Clive Black and Darren Shirley said after the disposal Dairy Crest “will be a focused UK operator seeking to build the performance of its strong brand portfolio and improve the return of its liquid milk Dairies, which is currently substandard”.
Mark Allen, chief executive of Dairy Crest, said: "We are delighted to have agreed in principle the proposed disposal of St Hubert, at a price which reflects the excellent progress the business has made under our ownership.
“Over the coming months, with a strengthened balance sheet, we will be able to consider a wide range of opportunities including synergistic acquisitions in the UK. This will allow us to employ the same brand-building skills that have contributed to the strong growth of our UK brands and St Hubert's success. However, we will only do this within strict financial criteria and where an acquisition would add value for shareholders."
St Hubert is a leading French producer of standard, low fat spreads. Dairy Crest said that St Hubert was the second largest player in the French spreads business with a market share of about 39% by value at March 2012.
Strong market positions
The business has strong market positions in both the healthy and classic segments of the market and owns the market leading St Hubert Oméga 3 spreads brand, said the firm. It also owns St Hubert 41, St Hubert 5 Céréales, St Hubert BIO, St Hubert Oméga 3 Spécialité Culinaire and Le Fleurier brands.
St Hubert operates in Italy in the spreads and dough segments through its Valle brand. Its market share is about 62% by value. The management team led by Patrick Cahuzac will stay with the business.
For the year ended March 31, St Hubert generated EBITDA of £41.5M (€48.1M) and earnings before interest and tax of £39.8M (€46.1M).
Dairy Crest said the gross assets of St Hubert were £141M (€169M).
The sale is subject to the approval of Dairy Crest's shareholders, the French competition authorities and financing consents. If approval is granted the sale is expected to be completed by the end of September 2012.
McNeela saw the deal as evidence of the “dairy headwinds abating”.
He added: “It is expected that Wiseman this morning will announce a reduction in the price paid to farmers for raw milk by about 1.7p. We would expect both the other major processors, Arla and Dairy Crest, to follow suit shortly.
“Within the dairies business competition remains intense but the pressures have abated with cream prices increasing recently, albeit marginally, and HDPE [plastics] and diesel costs have also fallen from recent peaks.”
Black and Shirley also noted that Robert Wiseman Dairies, now part of Muller, had announced a 1.7p/litre cut in its milk price to farmers from August 1. Other dairy processors were also likely to cut their prices“given the virtual absence of profitability in the liquid segment,” they said.
The firm announced the sale today (June 29), following predictions of a sale by City analyst Shore Capital yesterday.
