Manager's Monthly Report

The Trust produced a Net Asset Value total return of +2.2% during the month and a price total return of +2.7%, compared to a return of +2.3% for the FTSE All-Share Index (TR).

Despite the unyielding political fog, the UK market has found some support since the beginning of the year, with many domestically focussed stocks ramping up double-digit share price returns year to date. Having already risen with this tide, Dairy Crest, the maker of Cathedral City cheddar, advanced another 30% in February on the news it had accepted a 620p per share cash offer from Canadian dairy giant Saputo (a 27% premium to the thirty-day average price).

Dairy Crest has been held in the Trust since 2010, and for all that time has been under the stewardship of the same CEO. The company has never been a huge holding, reflecting its small market cap and that its product margins are influenced by volatile milk (and cream) prices. However, a shrewd management team have demonstrated a consistent ability to smooth margins through the dairy cycle.

Management have always taken a long-term view, something that resonated with us. They invested heavily in building a state of the art creamery, and consequently have the highest margins amongst their peers, meaning they could continue to invest at a level above the competition. With investment, they have driven innovation, exploiting the by-products of dairy production to make ingredients for the infant formula market.

While hefty capital expenditure and dairy price volatility have not always led to a smooth ride for the share price, since initiating the Trust’s position, the company has returned +155% vs +78% for the FTSE All-Share Index, with more than half of the return coming from an unbroken record of increasing dividends. The challenge of finding a worthy new home for the capital has been made easier by recent volatility.



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