Premier Foods wins analyst support as volumes rise

By Rod Addy

- Last updated on GMT

Rising volume sales spell good news for Premier's brands, said Shirley
Rising volume sales spell good news for Premier's brands, said Shirley

Related tags Premier foods

Premier Foods is set to gain from the growth in volume sales that supermarkets are experiencing and the fall in commodity costs, according to Shore Capital analyst Darren Shirley.

Commenting after meeting the maker of Mr Kipling pies and Ambrosia desserts yesterday (March 10), Shirley said: In particular, as evidenced by extensive secondary data (eg British Retail Consortium, Kantar ​[Worldpanel] and Nielsen), there is now volume growth amongst Premier’s key customers, the big four UK grocers.

“In 2014, the collapse in market share and accelerating decline in volumes was a considerable headwind and constraint for Premier … Rising volumes should assist operational efficiencies.”

Falling commodity prices

Declining commodity costs would also help Premier, said Shirley. “… For Premier, falling commodity prices are a helpful tailwind; Premier’s key inputs are dairy, sugar and sweeteners, oils and fats and wheat (mid-teens millions).”

He added that at the same time, the company was set to benefit from its continuing programme of simplifying and pruning product ranges, which would slash production costs.

“So long as Premier can keep its key brands on the shelves, with management effectively prioritising nine key brands in leading market positions (No.1–3), we believe future stock keeping unit rationalisation by the big four should benefit the group,”​ he said.

Cash behind marketing

The landmark refinancing deal it secured last year had helped it pour more cash behind marketing for Mr Kipling, Bisto, Oxo and Homepride, Shirley claimed.

Other brands gaining more support for media spend included Sharwoods and Loyd Grossman, with Shirley expecting support to build for Ambrosia, Batchelors and Cadbury cakes.

He predicted that Premier Foods would run other support brands such as Angel Delight, Smash and Paxo for cash generation, with high street value retailers becoming an increasingly important sales channel for them.

Cadbury cakes, Homepride

Shirley highlighted that support brands had generated £184M of sales for Premier in the 12 months to December 2014, claiming that Cadbury cakes and Homepride contributed about half of the turnover.

With Premier planning to reduce capital expenditure from £40M in 2014 to £20–25M this year, the company looked set to slash its debts, he added.

For more on Premier Foods’s growth strategy, read the exclusive interview with ceo Gavin Darby in our sister title Food Manufacture​ magazine, p16, or click here​.

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