Shore Capital analysts Clive Black and Darren Shirley wrote in a recent note on Müller’s approach for Robert Wiseman’s that, “the most direct read across from the interest in Wiseman is naturally for the Dairy Crest Group”, but said they did not make this move or conclude that Dairy Crest “will be next”.
However, hinting that the Wiseman interest would likely warm up Dairy Crest’s share price, the analysts added: “We have long felt that the future for quoted UK dairy sector [firms] would eventually be grounded among agricultural and private organisations, and this seems to be coming to pass."
Noting Arla Foods’ acquisition of Express/MD Foods (now Arla Foods UK) and periodic past interest in Dairy Crest from the likes of French giant Groupe Lactalis, the analysts said that corporate interest in Dairy Crest remained to be seen.
But Black and Shirley wrote: “However, we would not be surprised to see the group, in its present form or in different compositions, within such agricultural-based, and probably European farmers’ hands at that, in due course.”
Weak milk growth prospects
Elsewhere, pouring over the small print of German processor Müller’s prospective £279.5m (€335m) for Wiseman, the UK’s second-largest dairy company, Ildiko Szalai, senior company analyst at Euromonitor International gave her take on the deal.
Although Müller would become the largest UK dairy player following the purchase, the category offered the company weak growth prospects over the 2011-2016 period, she told DairyReporter.com.
She said: “The newly acquired company is strongest in private label milk, which is highly commoditised in the UK and therefore offers narrow profit margins. Over the long term, Müller will need to aim to leverage its strengthened market presence, infrastructure and brand portfolio into higher-margin, more dynamically growing categories of the dairy market.”
By integrating Wiseman, Müller would assume a 7% share in UK dairy, overtaking current leader Dairy Crest in the drinking milk products category, Szalai said.
She added that this category was worth US $6.2bn (€4.8bn) in the UK, more than twice the size of Müller’s current core category, yogurt, which was worth $2.8bn.
Szalai said: “Müller’s strong foothold in drinking milk via this acquisition is necessary for the company to gain leadership and significant operational infrastructure in the UK market.”
Müller moves beyond yogurt
But she warned that the UK drinking milks market was expected to decline in value by $92m from 2011-16, while value gains in yogurt were forecast to exceed $360m over the same period.
Cheese was also identified as another key growth driver in UK dairy, with a CAGR of 2% from 2011-2016, equating to additional value sales of $336m.
Szalai noted that Wiseman was the third-largest branded milk supplier (with its Black & White brand), but also counted Tesco and Sainsbury’s as major retail customers, and had supplied all the Co-Operative Group’s private label milk since last August.
She added: “Müller’s core operations, however, are in yogurt, which accounts for some 74% of its total dairy sales. Prior to the acquisition, Müller’s drinking milk activities were largely limited to the German market, where it generated some $103m in the category, equating to around 5% of the company’s global dairy sales.”