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Dairy Crest shares drop as it launches placing to fund Cathedral City brand growth

Last updated: 19:04 23 May 2018 AEST, First published: 18:54 23 May 2018 AEST

Dairy cows
Dairy Crest said it intended to place up to 14.1mln shares at a price of 495p

Dairy Crest Group PLC (LON:DCG) saw its shares drop in mid-morning trading Wednesday as it launched a discounted share placing to fund growth opportunities for its Cathedral City cheese brand.

The announcement was accompanied by the FTSE 250 food group’s financial results for the full year, which saw pre-tax profits leap 345% to £179.2mln from £40.3mln the year before while revenue grew 10% to £456.8mln from £416.6mln.

READ: Dairy Crest says revenue well ahead of prior year with strong demand for top brands

The group’s final dividend for the year was maintained at 16.3p.

Regarding the placing, Dairy Crest said it intended to place up to 14.1mln shares, just under 10% of its current share capital, via an accelerated bookbuild at a price of 495p, an almost 8% discount on its last close price of 536.5p, to pursue what it said were “a number of attractive opportunities” for its cheese brand, Cathedral City.

Cathedral City currently holds 20% of the UK’s cheddar cheese market, with the group saying it would use funds from the placing to increase its cheese production capacity from 54,000 tonnes to 77,000 tonnes per annum through a £85mln investment in its Davidstow factory in Cornwall.

Commenting on the results, Dairy Crest chief executive Mark Allen said: “We have delivered a strong performance, broadly maintaining our industry-leading margins against a backdrop of unprecedented cost inflation in the butters market. Our brands are in good shape. Cathedral City has had a good year growing value, volume and market share, and we see plenty of room for further growth for this industry-leading brand. We have seen good momentum in revenue growth going into the new financial year.

He added: "With much of the groundwork now complete, we expect sales of demineralised whey at infant formula grade to accelerate further over the coming year. We have already established ourselves as a leading supplier for organic GOS and we are also making good progress in developing a market for GOS beyond infant formula, having carried out research which has shown the meaningful benefits of using this product in animal feed.”

Russ Mould, investment director at AJ Bell, commented: “The announcement of a near-£70mln fundraising alongside today’s full year results has put some pressure on the share price as investors react to the implied dilution as the company seeks to issue new shares.

He added: “However, this looks to be an example of a company investing for future growth and the short-term pain of a discounted fundraise might be soothed by long-term gain if the company can execute on its expansion plans."

Dairy Crest shares were down 7.4% at 496.8p, just above the discounted placing price.

--Adds analyst comment--

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