Shares in Premier Foods plc jumped today (17 January) after the UK’s largest food manufacturer provided an update on its “growth plans” – but analysts remained concerned about the company’s recent trading.
Premier this morning outlined plans to cut costs further – a move that will lead to around 600 jobs being lost – invest more in marketing its “power brands” and said an agreement on refinancing its debts should be announced “soon”.
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The company’s shares were up 13.76% at 6.53p at 15:03 this afternoon, a rare spike in a year in which the stock has fallen by more than two thirds.
However, Premier’s announcement also included an update on how it traded over Christmas. The Oxo maker said trading had been “in line with expectations”, which, it admitted, would lead its overall 2011 financial results “to be at the lower end of current market expectations”.
The statement prompted analysts at Shore Capital to lower his forecast for Premier’s 2011 trading profit from GBP180m (US$276.3m) to “circa” GBP175m. In 2010, Premier generated GBP311m in trading profit, although it has offloaded businesses this year including meat-free unit Quorn and a clutch of brands in Ireland.
Shore Capital analyst Clive Black said: “Now, there was little incentive to our minds for Premier Foods to ‘shoot the lights out’ at this juncture from a trading profit perspective as a largely new management team seeks to build momentum. However, we cannot deny that this is yet another discouraging trading outcome tagged onto a long line of such disappointment.”
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By GlobalDataBlack, who kept his ‘sell’ rating on Premier’s shares, argued that the lower than anticipated profits in 2011 would mean the business would have made a “slightly weaker” start to 2012 and he cut his forecast for 2012 trading profit.
“Shore Capital has been positioning ourselves for a more sanguine stance on Premier Foods’ stock. However, the amalgam of subdued current trade, further downgrades to trading profits, the prospect of considerable redundancy costs impacting the 2102 financial out-turn and the uncertainty of refinancing and, if it does transpire at what cost, leaves us somewhat cold on the stock still,” Black said.
“Such factors therefore overcome the demonstrably improved control that CEO [Michael] Clarke seems to be bringing to the company, the potential benefit from cost reduction in due course and the promise of an improved performance from the group’s power brands, noting as we do that a large rump of still less than awe inspiring products remains with the Premier stable.”
Elsewhere, Panmure Gordon analyst Graham Jones said the company had made “another significant downgrade to trading expectations” and cut his forecast for Premier’s pre-tax profits in 2011 and 2012. He has a ‘sell’ rating on Premier’s shares.
Premier’s announcement included a doubling of its previously-announced target to save GBP20m in costs by 2013, which, it said, will help focus investment on its eight “power brands”, which include Oxo and Batchelors.
Jones said he understood Premier would spend around GBP50m on marketing in 2012.
“This looks a sensible move, as the ultimate fate of the group lies in its ability to put trading back on an even keel,” Jones said. “We suspect some of this may come from reduced budgets for other brands, but most will be a cost needing to be overcome in 2012.” However, he added: “The impact on profits will ultimately depend on the success of the innovation and marketing campaigns.”
Over at Investec, analyst Martin Deboo said Premier’s trading update meant teh company’s EBIT was set to come in “well below” his forecast of GBP199m.
However, he sounded a more upbeat note on Premier’s plans. “We would characterise this as a ‘jam tomorrow’ statement,” Deboo said. “But the jam feels reasonably sweet and fruity to us. Marketing spend on the new power brands will double in FY12 and the previously announced cost reduction target of GBP20m by FY13 is also being doubled.”
Deboo said Investec had re-stated its ‘buy’ recommendations on Premier’s shares and added: “We continue to think that Premier’s valuation is being driven by market expectations around the terms of any refinancing, rather than trading momentum,” Deboo added. So the shares are up … on what is a confident sounding statement from a company that doesn’t sound like it’s about to go out of business.”
