Shore Capital’s Clive Black and Darren Shirley remarked that Premier’s broad progress made the group’s stock to appear under-valued. However, they recognised the challenges of the UK grocery market in which the company operated and its high borrowing levels, which they expected to begin to fall in this financial year and beyond.
They praised chief executive Gavin Darby for the work he had undertaken to “knock Premier Foods into better shape” and for the strong management team he had recruited around him.
Investing in its sites
“From a production process and efficiency perspective, Premier is now investing in its sites with a view to improving productivity and, through new product development and marketing initiatives, plant utilisation,” said Black and Shirley.
“For example, material improvement has been made in the plant utilisation of the Carlton bakery in South Yorkshire, albeit across the group’s three bakeries there remains plenty of capacity.
“Premier has focused upon filling such capacity and, pleasingly, this has been to good effect with some new [own-label] volume in-tow. As such, the group is now seeing increased productivity in cake and it is on-track to achieve a double-digit margin from the Sweet Treats division and benefit from selective high return capital investment.”
They noted that capital expenditure was set to remain at around £25M for the foreseeable future, with much of the investment about replacing labour; something they expected to grow with the implementation of the National Living Wage.