Donegal issue set to rise on launch

Donegal Creameries' shares are likely to be bid up strongly from their 165p placing price when they begin trading on the Dublin stock market on December 12th. At the flotation price, Donegal will have a market value of £16.3 million, and the company is raising just over £2.5 million in the flotation.

Market sources said yesterday that the share was "priced to go", with the 165p placing price representing a multiple of just eight times 1996 earnings per share. The bigger Irish and British food companies are trading on multiples of between 14 and 18 times last year's earnings, so there would seem to be plenty of scope for a strong rise in the share price.

Donegal and its brokers NCB, have opted for the keen pricing to ensure a solid base of Irish institutional investors on its share register. Currently the bulk of the shares are held by 1,200 farmer-shareholders, but Golden Vale is the biggest shareholder with 10.1 per cent, followed by Avonmore Waterford with 3.3 per cent and the Belfast group T.B.F. Thompson with 3.2 per cent.

The existing shareholders have the option of maintaining their shareholdings as the £2.5 million fund-raising is through a placing and open offer at 165p each. It remains to be seen whether the bigger shareholders - Golden Vale, Avonmore Waterford and Thompson - will take up the shares in the open offer, but it is likely that Donegal would prefer if the new shares were placed with new institutional investors.

Donegal is already in a strong financial position and, according to Mr John Butler of NCB, the additional funding would allow the company to make acquisitions of up to £12 million. The indications from the flotation document is that Donegal aims to expand its presence across the Border into Northern Ireland, and take advantage of the expected further rationalisation in the Northern Ireland milk market. Last year, Donegal reported a 10 per cent increase in profits to £2.2 million with sales up from £43.2 million to £45.8 million. That improvement has continued into the first half of the current year, with interim profits of £1.5 million on sales of £25.3 million. Analysts believe that full-year profits of at least £2.5 million are likely for the full year.