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MARKET COMMENT
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The UK chilled food market was worth £6b in 1999. Chilled foods include dairy products, such as cheese and yoghurts, and the seemingly unending rows of ready-to-heat meals that pack the supermarket cabinets. Today, the market is worth £6.6b, representing an increase of 2% per year since 1999. Whilst the growth of the overall chilled food market might look a little unappetising, the market for fresh prepared foods is growing much faster. Geest (LSE: GET) reckons that the fresh prepared food market is growing at a hefty 10% per year, which more than compensates for the decline in volumes of cheese, spreads and delicatessen meats. The growth of freshly prepared meals has been driven predominantly by changes in our lifestyle. For example, there are now many more working couples, and that means less time to cook meals. Additionally, some experts reckon that many Britons have lost their basic kitchen skills! Whatever the reason, the chilled food market is definitely growing. That was very much in evidence when three of the UK's leading chilled food companies reported results this week. Uniq (LSE: UNIQ), the supplier of chilled foods to Marks & Spencer (LSE: MKS), said underlying turnover in the first half grew 10%. Northern Foods (LSE: NFDS), the maker of Goodfella's pizzas, managed to grow half-time sales by 6.5% despite tough trading conditions during the unseasonably hot summer. Meanwhile, Dairy Crest (LSE: DCG), a focused dairy products company, said sales volume of Frijj and Yoplpait grew 19% and 36% respectively. Food companies on the whole are not expensive as the list below shows. Dividend hunters may be tempted by Northern Food's 6.3% prospective yield. However, with net debt of £413m compared to shareholder funds of £354m, I think that Geest's 4.5% yield looks a much better prospect.Company Mkt Value Price Yield P/E
£m p %
Uniq (LSE: UNIQ) 234 204 3.5 10
Arla Foods (LSE: ARU) 267 43 3.1 8
Geest (LSE: GET) 368 490 4.5 11
Dairy Crest (LSE: DCG) 600 470 3.7 9
Northern Foods (LSE: NFDS) 739 144 6.3 10
Valuations are clustered around 10 times prospective earnings with Arla Foods (LSE: ARU), whose brands include Lurpak, looking the least expensive. Dairy Crest is also modestly priced at 9 times 2004 profits. That is because both Dairy Crest and Arla are involved predominantly in the dairy sector, which is not expected to grow that quickly.