Premier Foods loses its finance director

Premier Foods (PFD) surprised the City earlier this week when it announced that finance director Mark Moran was leaving the company - just as the maker of Hovis and Oxo is expected to embark upon another refinancing programme.

Mr Moran joined Premier in 2011 and has helped steer the company through the first phases of a major business overhaul. However, he felt unable to commit to another three years at Premier through - and beyond - another potential round of refinancing. His replacement, former Dairy Crest (DCG) finance director Alastair Murray, is rated highly by the City having seen Dairy Crest through a similar period of change. Still, the lack of continuity is something of a blow for Premier - particularly given the unexpected resignation of former chief executive, Michael Clarke, just eight months ago.

Management changes aside, Premier seemed to have started to turn a corner when it reported its half-year results in July. At that stage, the ‘power brands’, on which it has been focusing much of its attention, delivered decent sales growth - while cost-cutting helped to boost underlying profits. The restructuring of the bread business was progressing ahead of plan, too. However, sales still slumped overall, with significant declines in non-branded products, while the balance sheet remains in bad shape.

Investec Securities says…

Hold. We know and rate Alastair Murray and see him as a worthy replacement for Mark Moran. At Dairy Crest he has been intimately involved in areas of relevance to his new role at Premier - orchestrating a major business disposal, dealing with a material pension deficit, and managing a capital raising. Mr Murray’s qualities aside, we see the news as unhelpful to Premier’s efforts to rehabilitate itself in the eyes of the market. Still, the company retains our support, with our 160p target price, and our hold recommendation, retained. But, we think investors are now entitled to contemplate a window of opportunity - not a revolving door. Expect full-year pre-tax profit of £83m, with EPS of 26.6p.

Panmure Gordon says…

Sell. Mr Murray is a capable finance director with relevant experience at highly geared companies with pension fund issues. As such, we believe he should be seen as a safe pair of hands. We have consistently argued that, despite significant disposals in recent years, Premier’s balance sheet is not yet on a sustainable footing. Net debt is forecast to be 4.8 times cash profit estimates for December 2013 and the current agreement with pension trustees will see the majority of the company’s cash generation go to pension deficit contributions between 2014-16. This means banking covenants will tighten more quickly than gearing falls, necessitating a further rights issue. Our 130p price target implies an enterprise value-to-cash profits ratio of eight times for 2013, and seven times for 2014. Accordingly, we maintain our sell recommendation. Expect EPS of 26.7p for 2013.