Branded sales rose by 1.6% in the firm’s second quarter, while trading profit was up by 8.4%, and adjusted profit before tax rose by 21.6% in the 26 weeks to October 3 2015.
Investec analyst Nicola Mallard said: “Premier’s first half results provided evidence that the plan to reinvigorate its brands is starting to bear fruit. Where the group has invested, to date, there was clear evidence of revenue growth.
‘First half top line growth’
“After a better second quarter performance, undistorted by a moving Easter, the group delivered modest – 0.4% – first half top line growth.”
The solid revenue growth in the second quarter was no mean feat, given the challenging market for fast-moving consumers goods, added Mallard.
But a quarter was a relatively short period and Premier needed to maintain this level of progress in order to justify a re-rating to sector typical levels, she said.
“If it can deliver on its targeted 1–2% branded growth, we feel the stock could justify a higher multiple – our target price is 54p, which still suggests good upside. The debt/pension issues remain, but these liabilities are mostly locked down.”
‘Dangerous’ to extrapolate too much
While it would be “dangerous” to extrapolate too much from a single quarter, with plans for further investment in the group’s seasonally important third quarter, Investec expected to see the positive trend continue in the manufacturer’s second half.
“Premier’s first half results provided evidence that the plan to reinvigorate its brands is starting to bear fruit.”
- Nicola Mallard, Investec
Based on its latest results, Premier Foods reinstated guidance for branded revenue growth of 1–2% for its financial year 2017. Investec forecast a continuation of “modest revenue growth” in the firm’s 2016 financial year on a like-for-like basis.
Premier Foods’s debt was predicted to fall this year – courtesy of the (one-off) low pension contribution – but further reductions will be smaller and dependent on the pace of profit growth and future cost-led capital expenditure projects, said Mallard. No dividends were predicted in the analyst’s three-year forecast horizon for the business.
“The key risk is that the recovery is still in its early days and must be sustained for the stock to be re-rated to sector-typical levels,” said Mallard.
Investec repeated its ‘buy’ advice on Premier Foods’s stock.
Meanwhile, fellow city analyst Shore Capital was equally impressed by the manufacturer’s latest results. “Full credit we say, therefore, to Gavin Darby [ceo] and co, in executing this outcome,” said its analysts Clive Black and Darren Shirley.
“The results were the output of considerable hard work and execution by the Premier team in our view.”