Donegal Creameries shares begin trading on the Dublin market today and the indications are that despite the weakness on stock markets in the past two days, the shares will trade up to a substantial premium.

The placing and open offer of 1.5 million new shares at 165p was well oversubscribed - almost twice - by institutional investors, but Donegal shareholders are understood to have taken up about 650,000 of the 1.5 million shares under the clawback arrangement. "A 40 per cent clawback for shares at 165p each is very positive," said one source.

It is understood that Avonmore Waterford has maintained its 3.3 per cent stake in Donegal after taking up shares under the open offer, as has Belfast group T.B.F. Thompson, which has maintained its 3.2 per cent stake. Golden Vale is understood not to have taken up any new shares under the 2 for 11 open offer and its stake in Donegal will be diluted from 10 per cent to 9 per cent.

Market sources in Dublin expect Donegal shares to trade up strongly today. Half a dozen institutions are understood to have taken up shares in the placing and will probably want to increase their shareholding in the market. Donegal's 1,100 farmer-shareholders are unlikely to be largescale sellers of the shares and institutional buyers will face a shortage.

The shares were placed at a multiple of eight times earnings compared to an average of 14 times earnings in the dairy sector. The fact that the shares will be trading at 165p - only 10 per cent above the net asset value per share - is another positive factor.

Donegal chief executive Mr John Keon said that the £2.5 million proceeds of the placing and open offer will be used for working capital but the group - capitalised at just more than £16 million on the flotation - is also aiming to expand its milk interests in Northern Ireland.