The £2.6bn turnover company recently posted a 3.1% fall in first-quarter sales, and although its efforts to reduce its debts have been applauded, Premier’s balance sheet is still proving a turn-off for some analysts.
Uncertainty also prevails on the future leadership of the business, with the successor to outgoing chief executive Robert Schofield’s still not confirmed.
A Premier Foods spokesman told FoodManufacture.co.uk that the day – hosted at the Royal Bank of Scotland’s offices in London – was an “opportunity to bring investors and analysts together, especially since there’s been a lot of changes at the business recently".
Schofield will retire no later than April 2012 after a decade in the role, and chief operating officer Tim Kelly has been tipped as a frontrunner, although chief financial officer Jim Smart’s name is also in the frame.
Mixed set of brands
Premier plans to refinance itself via a bond issue (possibly as high as £500m) and urgently needs to instil confidence in current and potential investors. Kelly told the Financial Times ahead of the meeting: “My job is basically to grow the business without being encumbered by debt. The starting point is that Premier Foods seems like a new business now.”
But investment banking group Shore Capital said it was still approaching today’s meeting with a ‘sell’ recommendation on Premier's stock, and in a note this morning analysts Clive Black and Darren Shirley said the firm had a “mixed set of brands from a qualitative perspective, especially having sold its meat-free business”.
“Whilst material progress has been made in de-leveraging the company through disposals and now stable cash generation, for which we believe cfo Jim Smart deserves considerable credit, the business remains highly indebted with material pension liabilities,” they said.
“At the heart of the investment valuation of Premier Foods, to our minds, remains its balance sheet, a discount factor.”
Lukewarm on ambient
Black and Shirley also based their caution on Premier’s exposure in the ambient foods market, at a time when Sainsbury’s reports that UK consumers are “reducing waste, shopping more frequently and using fresh ingredients over prepared food, so depressing ambient volumes”.
Premier could “still find meeting trading profit expectations a challenge”, they predicted.
The analysts said they also hoped to obtain clarity on the future role of the Brookes-Avana business (ready meals and cakes) within Premier.
Premier’s brand portfolio includes Hovis, Sharwood’s, Branston, Batchelors and Mr Kipling.