(Alliance News) - Associated British Foods PLC's acquisition of National Milk Records PLC has increased its presence in the UK dairy scene and wider agricultural sector, according to analysts from Shore Capital.
In a positive appraisal of the London-based food producer, which also operates the clothing retail chain Primark, Shore welcomed the deal for AB Foods, noting the acquisition as the company's third within the UK agriculture sector in recent times.
Earlier Tuesday, AB Foods said it struck a deal to acquire National Milk, which provides technology information services to the UK dairy sector, for 215.00 pence per share or around GBP48 million in total. This represented an 87% premium to its 115.00p closing price on Monday.
National Milk shares jumped to 198.00p each on AQSE in London on Tuesday morning, while on the Main Market, AB Foods shares were down 0.2% to 1,838.61p each.
National Milk will join AB Agri, where it will have the AB Vista feed additive business and the Frontier Agriculture crop production and grain marketing unit as stable mates.
"Clearly, the acquisition will bolster AB Foods' presence in the UK dairy scene, where AB Agri states it works with c2k farms. AB Foods' agriculture business has also acquired in UK agri-consultancy and the equine market in recent times, so an interesting albeit modest application of capital to what we deem to be a strategically important industry," said Shore analysts Clive Black and Darren Shirley.
"We would welcome an increase in such capital allocation given this view, noting Agriculture is more often than not under a bushel in the ABF arena that is dominated by Primark."
As a result, Shore reiterated its 'buy' rating for AB Foods, saying it was "welcoming the deal, albeit [it] will be difficult to see the group earnings per impact".
It currently forecasts AB Foods' adjusted EPS for its financial 2023 ending September 17 of 118.40p, down from 131.10p a year earlier, although expecting it to return to the same level in its financial 2024 as in its financial 2022, and to increase to 148.40p in its financial 2025.
AB Foods said on the deal: "National Milk provides complementary services and technology offerings to AB Agri's existing operations across the dairy supply chain, and AB Agri believes that a combination will enable a better service to the dairy industry, initially in the UK, offering products that deliver increased value, efficiency and ultimately profitability for farmers.
"AB Agri is excited about National Milk becoming part of the broader group and believes that the acquisition will allow National Milk to accelerate and de-risk the delivery of its strategy, as well as creating greater opportunities for National Milk's customers, employees and wider stakeholders."
National Milk Chair Trevor Lloyd added: "As the UK dairy supply chain continues its drive to carbon neutrality, National Milk's work with GenoCells and milk data, and our pivotal role in payment testing, will contribute important information to aid in this transition.
"The backing of AB Foods will accelerate and de-risk National Milk's ability to deliver its strategic objectives, streamlining industry processes by creating a holistic business that can provide end-to-end data and analysis to ensure the long term sustainability, efficiency and profitability of UK dairy."
The acquisition has support from just under 69% of National Milk's shareholders, not far off the 75% needed to seal the deal, according to AB Foods. The buyout is expected to become effective in the third quarter of 2023.
By Greg Rosenvinge, Alliance News reporter
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