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After a string of profit warnings in recent years, Northern Foods surprised on the upside this time, with first-half results ahead of analysts' expectations. Profits before tax were partially boosted by lower interest charges, following some substantial disposals, but also reflected managers' efforts to rationalise the business.
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This was clearly evident in pricing; underlying sales volumes rose by 1.6 per cent, but revenue grew faster at 2.7 per cent and operating margins improved by 20 basis points to 6.1 per cent as reduced promotional activity boosted average selling prices.
In the chilled division, operating profits increased by 61.9 per cent on strong ready meal sales and initiatives to reduce manufacturing complexity. The bakery division also returned to growth, with revenue up by 2.8 per cent to £91.4m, although high ingredients prices dented margins.
However, revenue was down 2.3 per cent in the frozen division, as meat sales were affected by the poor weather this summer. Frozen pastry performed poorly too, but Northern Foods managers see room for improvement through consolidation in this fragmented segment.
Broker Numis Securities forecasts 2008 full year EPS of 7.1p, rising to 8.2p in 2009.
Northern Foods (NFDS) |
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|---|---|---|---|---|
| ORD PRICE: | 100p | MARKET VALUE: | £ 492.2m | |
| TOUCH: | 99-100p | 12-MONTH HIGH: | 134p | LOW: 86p |
| DIVIDEND YIELD: | 4.3% | PE RATIO: | 15 | |
| NET ASSET VALUE*: | 25p | NET DEBT: | 176% | |
| Half-year to 29 Sep | Turnover (£m) | Pretax profit (£m) | Earnings per share (p) | Net div per share (p) |
|---|---|---|---|---|
| 2006 | 428 | 13 | 2.04 | 1.50 |
| 2007 | 439 | 19 | 3.07 | 1.55 |
| % change | +10 | +53 | +50 | +3 |
Ex-div:09 Jan Payment:31 Jan *Includes intangible assets of £48.6m, or 9p a share |
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Northern Foods' shares have fallen 23 per cent since May on concerns about soaring commodity prices, but the group says these will largely be passed on to customers in the second half. Clearly, there's been progress here, but there have been false dawns before. Fairly priced for now.
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
