Shares digital

Dairy Crest (DCG) 469p

The Cathedral City cheesemaker has warned that more price increases are on the way as it battles to offset soaring costs. (Read the full story: www.sharesmagazine.com/node/3747)

Shares says: The company has already passed on high costs – of fuel, energy and commodities – to customers, but the wobbly economy suggests that it may not be able to keep up this strategy. There is going to be a point where consumers won’t accept continual price rises. It is also battling higher tax charges, debt is rising after borrowing in euros to fund a French acquisition, and it has a loss-making supply contract to the middle ground, in particular catering and small stores. SELL

The City - ABN Amro says: The UK dairy industry continues to see significant upward pressure on raw milk costs reflecting supply constraints, while Dairy Crest also faces increases in a range of commodity costs. To date, the company has been successful in offsetting these negatives through selling price increases, but further cost rises would require additional action on prices. Given the group’s solid trading momentum and the strong recovery we anticipate in UK Spreads, we are making no change to our £101.5 million pre-tax profit forecast for 2008/09. BUY

The City - Panmure Gordon says: Dairy Crest’s brands continue to deliver excellent growth and the glitch at Clover is now behind them. We are not changing pre-tax profit forecasts for the next two years (£94.7 million and £101.7 million respectively), but a slightly lower rate in 2008E and higher rate in 2009E mean we are increasing forecasts by 2% for 2008E and reducing forecasts by 3% for 2009E. Will also be a debate about whether multi-year losses in a middle ground contract should really be stripped out as exceptional. BUY