Dairy Crest sets price for float:The Investment Column

Dairy Crest, the former marketing arm of the Milk Marketing Board, looks set for a successful stock market flotation, two years after its first attempt was disrupted by the Government's de-regulation of the milk market.

The volatility this time around is not so much in the milk market as the stock market, which has caused Dairy Crest's advisers to price the issue slightly lower than expectations. At a price of 155p the company is valued at pounds 171m. Thirty per cent of the stock was placed with institutions yesterday with the remainder being given to the 28,000 farmers who jointly owned the company through the Residual Milk Marketing Board. On average they will pocket pounds 6,000 from the float.

Though dealings in the shares are not expected to start until 28 August, an internal market has been set up to enable farmers to trade their shares ahead of that deadline to avoid disorderly selling and buying by the farmer- shareholders.

At 155p, Dairy Crest shares are certainly priced competitively. They are on a price/earnings ratio of eight, while rivals Unigate and Northern Foods both trade on 11 with a less attractive yield. This makes Dairy Crest a good bet and at these levels it is hardly surprising that institutions appear to have fallen over themselves to grab a slice.

Dairy Crest has done much in recent years to slim itself down from a bloated co-operative but it remains Britain's third-largest dairy company. Going forward it will need to concentrate more on building higher-margin brands like its successful Clover spread and its young but growing Frijj range of milk drinks, while reducing its dependency on commodity items such as liquid milk.

The company's operating profits of pounds 35.2m last year on sales of pounds 740m show there is plenty of scope for more margin improvement to come. Good value.