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Last year's interim results were of little help when comparing the latest set of figures from Premier Foods. Indeed, in the past 12 months, the food producer has put on some weight with the acquisition of RHM in March, for £1.3bn, and Campbell Soup last August, for £460m.
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RHM, the owner of the Bisto, Sharwoods and Mr Kipling brands, delivered £436m of sales, almost half of the group revenues, while Campbell added £120m. During the period, the St Albans-based company also disposed of MBM, a supplier of fresh produce, and Erin, an Irish grocery producer. Restructuring costs of more than £40m largely contributed to the fall in profits, although Premier remains on track to deliver a combined £113m of annual cost savings from the two deals.
That will be needed as analysts at JP Morgan calculate that, on a pro-forma basis, group trading profit dropped 16 per cent in the first half due to a 30 per cent fall in RHM's profits. Higher wheat costs - which have doubled in the past year - higher distribution costs and overheads and lower sales volume led to a 50 per cent dip in profits at its bakery business. Consequently, the group has put up the price charged for bread and flour and might seek a further increase if the price of grains does not subside.
Broker JP Morgan has downgraded full-year EPS forecasts from 21.5p to 15.7p (16.6p in 2006), and its 2008 numbers from 23.9p to 19.5p.
Premier Foods (PFD) |
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|---|---|---|---|---|
| ORD PRICE: | 247p | MARKET VALUE: | £ 2,085m | |
| TOUCH: | 246.5-247p | 12-MONTH HIGH: | 334p | LOW: 223p |
| DIVIDEND YIELD: | 5.0% | PE RATIO: | 27 | |
| NET ASSET VALUE*: | 182p | NET DEBT: | 112% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Net div per share (p) |
|---|---|---|---|---|
| 2006 | 367 | 27.6 | 6.6 | 3.95 |
| 2007 | 899 | 13.9 | 3.1 | 4.30 |
| % change | +145 | -50 | -53 | +9 |
Ex-div: 04 Jan Payment: 21 Nov *Includes intangible assets of £2706m, or 320p a share |
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After a sharp correction, Premier Foods shares are down 20 per cent since we last advised buying at 310p (9 March 2007). This reflects earnings downgrades and margin pressure from rising raw material costs. However, the yield is attractive, as are the planned cost savings from the acquisitions. Trading on forward PE ratio of 12 for 2008, the shares are a recovery buy.
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-IC-1.6.1b-prod - 17/12/2008 12:46:12 - jonathan.furseftb
