Black’s comments followed the publication of Premier’s strategic review and trading update, which saw the manufacturer rethink its pension scheme and share the impact of Covid-19 on the business.
The manufacturer today (20 April) announced a “segregated merger” of its three pension schemes, a move that would reduce its pension contributions by 45% from a range of £300–£320m to £175–£185m.
Black pointed out that the decision would lead to a substantial reduction in future funding requirement by the company, as its pension responsibilities had been a drag on its equity rating for some years.
Keeping contribution in check
“We warmly applaud and welcome this work,” said Black. “The potential benefits do not emerge overnight. However, Premier has set out a medium-term schedule, which indicates that annual pension contributions from the group could fall from the present £38m from FY2024 to somewhere between £17m and £30m.
“Furthermore, the rationalisation of the schemes, could save operating expenses of c£4m per annum from FY2021, notable adjustments that speed up de-leveraging, create scope to re-commerce dividend payments and maybe corporate optionality too.”
As well as an update on its pension scheme, Premier reported strong current trading, thanks to several weeks of peak demand during the recent coronavirus lockdown.
It expected to report trading profit for the 52 weeks ended 28 March 2020 at the top end of market expectations, with sales in the fourth quarter growing 3.6% compared to the prior year.
Beefier estimates for the year
As a result of the positive results, Shore Capital upgraded it full-year 2020 trading estimate for Premier by £2–£3m with the potential for 2021 to nudge higher – though it would be hard to match the results of seen this March, which came about due to Covid-19 stockpiling.
“The pension news is great, to beat to net debt forecasts is fabulous and the strong current trade … well, that is wonderful,” added Black. “The de-leveraging permits to use rating expansion – who would have thought Premier could deliver this welcome triple whammy.”
Shore Capital reiterated its Buy recommendation on Premier’s shares after hearing the good news. Premier’s full-year results are scheduled to be published on 14 May.
Meanwhile, Tesco “deserves immense credit and thanks” for its “almost military-like programme of work” surrounding the coronavirus crisis, according to Clive Black.