Shares surge despite sales fall at Donegal Creameries
SHARES in Donegal Creameries surged as much as 12pc yesterday after it reported better-than-expected results against gruelling conditions in its dairy and agri-business markets.
Donegal suffered a 13pc fall in group-wide sales but managed to increase its adjusted earnings per share by 6pc after a solid performance from joint ventures, including Monaghan Mushrooms.
"While 2009 was a very challenging year, the diverse nature of the group provided the platform to deliver a solid performance," chairman Geoffrey Vance said in a statement.
The challenges were particularly stark in the agri-business division, which accounts for about a third of Donegal's sales. The unit swung to a loss of €2.4m for the year, reversing profits of €1.3m a year earlier, as sales plunged more than 20pc to €37m.
Describing the performance as "very disappointing, but not surprising", Donegal attributed the result to the "collapse in raw material prices in late 2008, reduced spending power at farm level and the weakness of sterling".
The company stressed, however, that "improved" trading in the first quarter of 2010, coupled with "changes" to the division's business, means Donegal expects "operating profit in the current year to return to more normal levels".
The firm's dairy division also suffered a bruising 2009 as sales fell €10m to €46m on foot of "a significant drop in world commodity prices" and a 3pc fall in the volume of milk collected.
The division was boosted by a good performance from Donegal's "value added dairy" and the overall dairy unit managed to improve its profits by 23pc to €2.2m.
Managing director Ian Ireland said the group would continue to "pursue strategies and relationships which ensure the sustainability of milk producers" who were trading in a "very difficult" environment.
The third hit of the year came in Donegal's property division, which includes student apartments and the Grianan Estate.
That division had no acquisitions or sales last year, but booked a €5m writedown on its €42m property portfolio, leaving the unit with a €4.8m loss for the year.
The impact of the hits at dairy, agri-business and property was softened by a 60pc rise in profits at Donegal's smaller produce division and a €2.7m contribution from associates, including Monaghan Mushrooms.
The results were widely welcomed by analysts, who also praised Donegal for reducing its net debt from €26.7m to €20.5m over the year and the group's unchanged dividend payments.
Goodbody Stockbrokers is now pencilling in a "significant increase in operating profit (20pc+)" in 2010, while NCB says the stock is "significantly undervalued" given its yield of 7.6pc and focus on higher margin activities.