The partial redemption is in addition to the £80m redeemed in June this year and was said to reflect the group’s strong trading momentum during the first half of the financial year, as well as further progress toward reducing net debt.
“As the group continues on its path to deleverage the business, its intention is to utilise future free cash flow to reduce its cost of financing,” said the trading update. “Following the completion of this partial redemption of notes, the group expects to save approximately £2m per annum in interest costs.”
In response to the update, Shore Capital increased its full-year (FY) 2021 current pre-tax profit (CPTP) forecast for Premier by 1% to £105.7m and up 2% for its FY2022 CPTP to £110.1m.
Shore reiterated its buy recommendation for Premier’s stock, based on an attractive combination of upgrades and ongoing ratings expansion for an increasingly cash generative business.
Analysts Darren Shirley and Clive Black added: “In the latest positive update, in what has been somewhat transformational year, Premier Foods has announced its intention to redeem a further £40m of its £130m outstanding senior secured floating rate notes.”
“If the Group's 49% investment in Hovis is sold – a process we see commented upon in the business press and international market announcements – then Premier will deleverage further and quicker still, so augmenting the re-rating process.”
Italy's Newlat Food confirmed its proposed acquisition of Hovis, following a Sky News report flagging the move, with Newlat claiming a successful bid would enable it to reach sales of €1bn within 24 months.
Commenting on the proposed sale of Hovis, Rollits corporate finance director Julian Wild said: “Hovis has been a tough business for a long time in a very competitive bread market. Gores & Premier were always likely to sell on when they got the chance.
“I think Newlat will find the UK bread market to be a real challenge. The opportunities are better for niche players producing more specialist products, like DW Baking.”
Meanwhile, Greencore is ‘quicker, leaner and stronger’ despite taking an operational hit of £10m in responding to COVID-19, according to analysts at Shore Capital.