Half-year results likely to concern Sullivan

Ned Sullivan - chief executive designate - must have looked at Avonmore Waterford's half-year results with some concern as he prepares to take over from Pat O'Neill next year. Those figures were the archetypal curate's eggs - good on the dairy side of the business but truly dreadful on the meat side.

Huge oversupply of pigmeat meant that profits in this part of the meat business disappeared in the first half. While there is expected to be some improvement in the second half, beef processing - which plays a far bigger role in the business in the second half of the year - does not have the sort of margins to produce any major improvement.

So Avonmore Waterford is a combination of a dairy and consumer foods business that is doing well and a meat business which is exposed to all sorts of economic trouble spots - from Russia to the Far East.

For that reason, many analysts believe that a discount has to be priced into Avonmore Waterford to reflect that exposure to the volatility of the meat industry and that a earnings multiple of at most 10 times is what the share price can aspire to. That suggests a ceiling of 240-250p for the share price.

Against the background of the oversupplied European pigmeat industry, it was interesting to see the two biggest Danish meat processors detailing plans for a merger. Both Danish Crown and Vestjyske Slagtierer are coops and together process 80 per cent of the Danish pig population. The merger will create a group more than twice as big as its nearest European rival, Dumeco of Holland and Unigate of Britain.

The chairman of the merged group Niels Mikkelsen, made it clear that the link is aimed at maintaining "the offensive role which the Danish meat industry plays in the world's markets". Strong words, suggesting that the Danes are likely to up the ante in an already intensely competitive pigmeat industry.