Blackfriar: High wheat prices could slim down companies' figures

Escalating wheat prices are set to become a major feature over the coming months and it's not good news for Leeds-based Northern Foods and to a lesser extent Hull-based Cranswick.

Although wheat products are not the lifeblood of either business, the increase in price is likely to have a sizeable negative impact on the two companies.

Yesterday the UK's biggest food producer, Premier Foods, warned shoppers that bread prices will have to increase following the sharp rise in the cost of wheat.

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The group, which makes Hovis bread, said it will have to pass rising wheat inflation on to retailers, which could lead to a 10p increase in the price of a loaf of bread. Wheat costs have rocketed by around 50 per cent since late June.

Harsh droughts and wildfires in Russia, one of the world's largest exporters, are thought to have killed around a fifth of its wheat crops.

Northern Foods, which supplies Marks & Spencer, Leeds-based Asda, Bradford-based Morrisons, Sainsbury's, Tesco and Aldi, is exposed to the price increase across a range of products including sandwiches, pies, pizzas and biscuits.

To a lesser extent there are also worries about escalating costs of other important raw materials such as cocoa, dairy, paper and plastic packaging prices.

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Cranswick, which supplies leading supermarkets such as Sainsbury's and Tesco, could also face a hit on its sandwich range, which has seen substantial growth recently.

The upmarket sausage maker could also feel an impact if barbecues become a bit less attractive because of the rising cost of buns.

The market hopes to get an update from bakery chain Greggs, which has big expansion plans for Yorkshire, when it reports interim results next week.

Greggs could be one of the worst hit as it operates at the discount end of the market and is therefore much more susceptible to price moves.

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The market is hoping that won't impact on its expansion plans, but companies that rely on wheat as an essential raw ingredient are in for tough ride.

AT a first glance, Filtronic's proposed 10.7m purchase of loss-making Isotek looks like an expensive risk to take.

The once-mighty Filtronic, spun out of the University of Leeds in the late 1970s, has shrunk in recent years and now turns over just 15.6m from its point to point business.

Chief executive Hemant Mardia is hungry for growth. He wants to spend about 4.35m of its 16.2m net cash, plus hand over about 20 per cent of its shares, in return for the Leeds-based filters firm.

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But while Isotek last turned over just 0.8m and made a 1.9m loss, there are some compelling reasons why it could be a very good buy. Isotek is run by former Filtronic employees who left the group when it sold its wireless infrastructure business to Powerwave Technologies for 184m.

The deal brings renowned industry experts back on board, who by their new shares, will have a vested interest in the group doing well.

Even Filtronic founder Professor David Rhodes, a major Isotek shareholder, will also provide consultancy services to Filtronic.

Isotek would allow Filtronic to plunge back into the mobile phone base station market in a big way.

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Surging demand for data-hungry mobile devices such as smartphones, net books, laptops and tablets means Isotek's technology is vital for operators to upgrade to 3G and 4G services.

This market is forecast to grow to 370m in 2012.

Filtronic is confident Isotek will add 15m to revenues by 2012. And after speaking to Isotek customers who have tested its equipment, their only question is how quickly can Filtronic begin churning out its products.

While supporting the acquisition will be a leap of faith for shareholders, Blackfriar believes this could be the start of rebuilding the mighty Filtronic empire.