MARKET COMMENT
Milking Profits From Market Uncertainty

By David Kuo (TMFDragon)
November 11, 2002

There is nothing that investors hate more than uncertainty. Uncertainty tends to be most prevalent when businesses decide to shift strategic direction. This is largely because strategic decisions can have major implications to a company's resources. Companies do not, as a rule, change their strategic focus either regularly or lightly. By definition, corporate strategy is a long-term plan that a business adopts. However companies can, and do, change focus as a means of adapting to the competitive environment.

A good example of a company that has actively, and consciously, changed strategic direction recently is Uniq (LSE: UNIQ). In its former guise, as Unigate, the company was a focused dairy products outfit. It had significant interests in milk distribution. In fact dairy-related produce has been the company's lifeblood since its inception in 1959.  It also had a separate interest in chilled-food distribution through its logistic arm, Wincanton (LSE: WINC). As a group, earnings were steady, though perhaps uninspiring. However, the changing face of milk distribution prompted the company to divest its core dairy interest and concentrate instead on its chilled food offerings. Gone is its milk and cheese unit. And no more is St Ivel spreads and its Malton pig meat processor business.

The move by Uniq away from dairy and into convenience foods that include sandwiches and sauces begs an important question for any investor. That is why would any company want to get rid of what are clearly its cash cows and embrace the greater uncertainty that any such strategic change necessarily entails. Well, it's a response by management to what it sees as major threats to the company's future. Uniq's decision appears to be vindicated by its interim numbers today. Underlying profit has improved some 70% to £12m. The company also said that receipts from disposals have reduced debt to below £100m.

There is still uncertainty over the future of Uniq. However the company, quite cleverly, has chosen not to compete with the major food producers. Instead Uniq has embarked on a generic strategy that relies on clear differentiation, which relies on its strong supply chain to get fresh foods to the market place quickly. Its customers include Sainsbury (LSE: SBRY) and Marks & Spencer (LSE: MKS) and it even supplies smoked salmon to Her Majesty the Queen. Earnings are expected to grow a healthy lick of some 30%, which seem achievable given performance from today's half-time results.