Banks will demand Premier Foods disposals

The Hovis and Mr Kipling firm has limited time to sort out a refinancing programme – and at least one analyst expects the current trading quarter to be dragged down by more disappointing sales.

“I think it’s entirely likely that there will be a further profit warning in January because trading will not have been good​,” the analyst – who asked not to be named – told FoodManufacture.co.uk. “Premier has a significant cold weather portfolio and we’ve just had one of the warmest Octobers on record​.”

Premier has been widely expected to default on its banking covenants due to a combination of soaring debt and poor sales. Banks have agreed to a three-month extension to the date on which the covenants will be tested, giving the company until March 31 to restructure its finances.

Extension​

Analysts say the extension deal, which involved some 30 institutions and cost Premier an estimated £1M in extra bank fees, was inevitable, but does not make the task facing it any easier. The firm has clean debt of over £1bn, a pension deficit of £535M, and issued a profits warning at the beginning of October.

Alex Sloane an analyst at Societe Generale said: “It hasn’t really changed much. I think it’s more about buying time – it hasn’t actually changed the covenants and they haven’t agreed any extension to their debt facilities, which expire in December 2013. ​

“It’s given them an extra three months to make disposals, but unless they’re quite high multiples that’s not necessarily going to help them.​

“Their priority is coming up with long-term financing with the banks and the resetting of covenants. In order to do that the banks will be demanding that they do make disposals.”​

Will Premier be a smaller company on March 31 2012 than it is today following a hasty sell-off programme? Exane BNP Paribas analyst, Jeff Stent said: “It’s not impossible they will have sold some assets but I struggle to see much value for equity holders. It doesn’t mean the business goes bust – it just means the equity isn’t worth anything and they delist.”​

Negative publicity​

Premier’s share price high point this year was 46.47p, but this has crashed to a low of around 3p and shares have been trading this week for just under 4p.

Although the company has faced a barrage of negative publicity and some scathing judgements from analysts, chief executive Michael Clarke said that “constructive​” negotiations with its banking syndicate were evidence that lenders remained supportive of the business and its forward strategy.

Premier has said it plans to focus on eight core brands: Ambrosia, Batchelor’s, Bisto, Hovis, Loyd Grossman, Mr Kipling, Oxo and Sharwood’s, leaving the door open to disposals of other parts of its business.

Clarke said: “In recent weeks, we have set out our priorities and made significant leadership changes to strengthen our focus. We are now moving quickly to finalise our detailed growth plans to ensure we continue to build momentum in the business​.”

Meanwhile, Martin Deboo, an analyst at Investec bucked the trend amongst experts.

In a note released as Food Manufacture.co.uk went to press, Deboo said the stock market had underestimated Premier’s deal with the banks, describing it as “quite a significant event​.”

The resultant risk/reward gives the firm a legitimate place for a buyer with a special situation portfolio, he added.