Premier’s shares bounce back fuelled by ‘strong’ full-year financials

  • 30 June 2020
The stock price of the parent company of the Ambrosia and Cadbury brands has been trading above the 65p per share bid, which Premier rejected from McCormick in 2016
Broker watching stock price of companies on a computer

The stock price of Premier Foods has bounced back from a four-year low. The parent company of the Ambrosia and Cadbury brands has been trading above the 65p per share bid, which Premier rejected from McCormick in 2016.

The stock price picked up last week when Premier published full-year results revealing better-than-expected financials. Adjusted profit to 28 March 2020 was up 6% to £93.3 million and group revenue saw a 2.8% increase to £847.1 million.

“This has been a period of considerable progress for the company,” said Alex Whitehouse, chief executive.

Whitehouse explained that Premier has concluded a strategic review with a landmark pensions agreement, which has the potential to significantly reduce future funding requirements for the group.

“Our UK business has now delivered 11 consecutive quarters of revenue growth”

Alex Whitehouse, Premier Foods chief executive

“This year we delivered trading profit at the top end of market expectations, reduced our net debt by £62 million, and in so doing lowered our net debt/EBITDA ratio to 2.7x, beating our previous 3.0x target,” said Whitehouse.

Premier’s chief explained that in the UK, brands in the portfolio grew ahead of their competitors. “Our UK business has now delivered 11 consecutive quarters of revenue growth,” he said.

Deals on the horizon

Investors have seen Premier’s numbers with optimism, and players in the market have suggested the bounce-back momentum could lead to a deal on the horizon.

Analyst Michael Cain said Premier’s £572 million market cap “looks in good shape to proceed with portfolio changes”. Cain pointed to Ambrosia and Hovis as potential divestitures.

The MergerMarket analyst believes that Premier might also have the option to secure a deal to boost the business.

Premier’s £572 million market cap “looks in good shape to proceed with portfolio changes”

Michael Cain, analyst

The analyst argued that one route that Premier could take is to merge the business with Hain Daniels, the UK subsidiary of Hain Celestial. The business was on the market at the end of last year with talks held with private equity fund PAI Partners.

Hain Daniels is on par with Premier, reporting revenues of £886 million in 2019.

Any deal on the horizon, Cain said, would need to be funded with equity, which at the moment doesn’t seem to be an attractive move with valuation at 6-7 times revenues; roughly three times lower than traditional values for transactions in the UK food market.