- New product and advertising plans could drive growth forward
- Intends to pay another full-year dividend
Premier Foods (PFD) struggled with lower demand in the six months to October after the earlier upswing during lockdowns. Revenue fell back and operating profit was down by over a fifth at the food manufacturer, whose brands include Mr Kipling and Oxo. Investors were left feeling slightly queasy, as if they had eaten too many of Premier’s cakes, as shares pulled back during results day.
However, against pre-pandemic figures the group exhibited strong growth. Branded revenues and statutory profit before tax were up 11 per cent and 105 per cent, respectively, from 2019. Performance was sufficient for management to confirm the group intends to pay another full-year dividend after the first in 13 years was paid in July.
Encouragingly, the group is dealing well with industry-wide supply chain issues, while the £25m given over to capital expenditure through the year will help buffer this to a degree.
Plans for the second half of the year look promising for growth prospects. Premium Mr Kipling biscuits and a branded ice cream range will be launched. Mr Kipling will travel to the Americas: the brand will be fully launched in Canada and test launched in the US. Six of the group’s major brands will be supported with advertising projects.
Peel Hunt said “the shares continue to look excellent value to us given the strong underlying revenue and margin performance”. The broker forecasts adjusted earnings per share of 10.8p – up from 10p last year – and free cash flow of £60m for the fiscal year, underpinning the dividend commitment.
The shares trade at 10 times forward adjusted earnings, according to FactSet consensus estimates. This looks appealing, given the growth outlook. Combined with a robust supply chain we think this justifies a recommendation upgrade. Buy.
Last IC View: Hold, 107p, 19 May 2021
|PREMIER FOODS (PFD)|
|ORD PRICE:||110p||MARKET VALUE:||£ 945m|
|TOUCH:||110-111p||12-MONTH HIGH:||127p||LOW: 85p|
|DIVIDEND YIELD:||0.9%||PE RATIO:||11|
|NET ASSET VALUE:||141p*||NET DEBT:||28%|
|Half-year to 02 Oct||Turnover (£m)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
|*includes intangible assets of £950m, or 111p a share|