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Food production and processing remains one of London's most unloved sectors. Most analysts view the sector with a degree of disdain, with some of the opinion that 'there's no such thing as a growth food producing stock'. Even among its supporters, the most upbeat the message often gets is the dowdy notion that it's a 'defensive' sector.

Sector star

Choosing where to start though is not easy. Amid the back-drop of food scares, unloved companies going private and consolidation, Nicola Mallard from ING Barings Charterhouse highlights the need to avoid the speculative and 'look for quality'. In this respect one name seems to roll off all analysts' tongues - Geest.

The chilled food proprietor is widely regarded as being the pick of the food producing bunch. Recent full-year figures revealed pre-tax profits and exceptional items up 12 per cent to £36.6 million on £622.8 million of sales. The company supplies chilled and packaged 'convenience' foods such as prepared salad, fresh pizzas and ready meals to major retail chains in the UK, France and the Benelux region and Michael Landable of Investec Henderson Crosthwaite believes that this is definitely the place to be.

With finance director Mark Pullen promising 'a new product in a totally new area', market expectations for 2001 are for £41.3 million profits, and a dividend of around 17.1p. At its present price of 594p (£438 million) the group is trading on a forward p/e of just over 13.

The hopefuls

Of the smaller companies, Aim-listed cake manufacturer Inter Link Foods looks particularly promising. Peter Cooper of house broker Brewin Dolphin believes the company is well set, having picked up Cakes for Connoisseur (from the receivers after fellow Aim-listed NFF hit the wall) and Celebration Cakes for £3.75 million. Inter Link boasts an established client base ranging from major supermarkets to corner shops and Cooper reckons this will assist the selling of new product lines. Cooper is forecasting increased pre-tax profits of £1.7 million (£1.1 million) for the year to April and expects 2002 to be even better. With the full benefit of the acquisitions being felt, profits of £3.3 million are predicted on turnover increased from £19 million to £48 million. The shares currently stand at 280p, on a prospective p/e of 12.4.

Another company set to deliver solid profits growth is ice cream manufacturer Richmond Foods (prospective p/e of 10.5), shares in which currently change hands for 156p, valuing it at £34.9 million. Having delivered increasing profits and turnover since 1997, house broker Investec is forecasting pre-tax profits of £5 million for 2001 and £6 million for 2002.

Defying the odds

Perhaps surprisingly - given the recent concerns over foot-and-mouth - pork processor and animal feed producer Cranswick is also shaping up well. Although the shares were knocked slightly by the crisis they have since rallied to 381p, giving the company a value of £72 million. Despite exceptional costs of around £20,000 a week being accrued at present as a result of anti-foot-and-mouth measures, Barney Gray of Beeson Gregory says the shares are good value. He forecasts profits of £11.1 million (£9.3 million) for the full year on turnover increased from £157.3 million to £173.7 million. At current levels, the shares are trading at a mere nine times 2001 earnings.

Milk wars

One area it seems prudent to avoid at present is the cutthroat world of milk production. Mallard and Landable are both adamant that more pain is in store for those operating in this market, and indeed one of the big players, Express Dairies, recently issued a profits warning, citing the foot-and-mouth crisis, rising prices of raw milk and increasing competition as major concerns.

The issue of competition seems to be the biggest problem. A recent research note from ABN AMRO suggested that Robert Wiseman's opening of a new £35 million processing plant in Droitwich may prove 'a dairy too far' as they need to find the raw milk to fill it. Landable concurs that the situation is 'shaping up for a fight' and while some believe that Wiseman - which has strong links with the likes of Tesco and little reliance on the dwindling doorstep market - is in the box seat, others suggest that Dairy Crest will prove more robust. This is because it boasts well-known brand names in other markets, such as Cathedral City Cheese.