Does Dairy Crest Group plc have investment appeal after today’s trading update?

Will Dairy Crest Group plc (LON:DCG) (DCG.L) deliver capital growth in the long run?

Dairy Crest
Dairy Crest

Dairy Crest Group plc (LON:DCG) (DCG.L) has released a trading update for the six months to 30 September 2018. In my view, it shows that the company is making good progress with its overall strategy.

It expects revenue for the half year to be ahead of the same period of the previous year. It has been driven by strong performances from its two largest brands, Cathedral City and Clover.

The company’s other brands, Frylight and Country Life, have experienced more difficult periods. The former has seen a reduction in volume in line with the broader UK oil market. Unusually hot weather has led to reduced oil usage, although improved performance has been recorded in recent weeks. This trend is expected to continue in the coming months.

Country Life, meanwhile, has seen its promotional activity restricted. This is due to butter costs being high, which has negatively impacted sales.

Dairy Crest continues to invest in innovation. In 2017/18, 14% of revenue came from recent innovation, which is higher than its 10% target. Examples of innovative products include the recent launch of Clover Light with no artificial ingredients. The company is also set to launch two new Cathedral City snack bars, as well as a Lactose Free range.

In my view, the performance of Dairy Crest has been relatively strong. The company has a sound strategy in my opinion, and its focus on innovation alongside a strong product portfolio could generate improving financial performance over the medium term.

Although the outlook for UK consumers seems to be uncertain at the moment, the stock could deliver capital growth. It has a P/E ratio of around 14, and is forecast to report positive EPS growth in the next financial year. As a result, I wouldn’t be surprised if it outperforms the FTSE 250 over the medium term.

About Robert Stephens 5430 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email or use one of the other contact methods available on the 'Contact Us' page