Premier Foods ‘probably a zombie company’: City
Debt-laden food manufacturer Premier Foods was described as a “zombie company” in March by analyst Panmure Gordon.
Its executive director Graham Jones said: “If a zombie company is defined as one that can afford to pay its interest and pension liabilities, but is not able to reduce high levels of debt, then we think at the moment Premier probably meets that definition.”
Despite disposal proceeds now totalling £370M, Panmure Gordon forecast net debt/earnings before interest, tax, depreciation and amortisation (EBITDA) of 4.9x for this year.
In a section titled ‘Kicking the zombie habit’, Jones estimated the ratio translated to about 4.1x on a banking covenant basis, which was inside its covenant of about 4.5x.
“But we see the covenant tightening faster than Premier can keep up with and, by 2014, the headroom on your forecasts looks low. We think a further equity raise (of around £200M) plus a corporate bond issuance could bring Premier back into the land of the living.”