Premier Foods raises guidance

Mr Kipling maker Premier Foods (PFD) raised its profit guidance after delivering a tasty first-half performance and trailing further promotional price cuts that should aid volumes.

Management now expects full-year trading profits to be around 10 per cent up on the £158mn posted last year, a bump from the previous company-compiled analyst forecast range of £165mn-£169mn. It put this down to “brand investment, new product launches and impactful instore execution”.  

Branded revenues rose 15.8 per cent in the half as all grocery brands – such as Bisto and Loyd Grossman - delivered growth. New categories products made progress, with Ambrosia porridge pots a key growth driver as revenues rose 21 per cent.

Revenue growth came in at 28.7 per cent on the non-branded side of things, due to a combination of pricing action and pie and tart contract wins in the sweet treats division.

International markets currently contribute around 7 per cent of revenues, and delivering further overseas growth is one of management’s key strategic pillars. The performance in the half was encouraging, with a strong US showing helping to drive revenues up 19 per cent. Around 900 more US stores stocked Mr Kipling products than at the start of the year. 

Meanwhile, acquisition activity seems to be paying off both financially and strategically. The Spice Tailor range of Indian and Asian cooking kits is set to deliver returns ahead of plan, while the £34mn purchase of granola, oats and drinks purveyor Fuel10K after the period-end has expanded the company’s breakfast market offering.

Looking ahead, consumers look set to be enticed by more promotional price cuts on key brands. Management expects this to help with further volume recovery, with grocery volumes trends heading in the right direction in the second quarter. 

Chief executive Alex Whitehouse said that falling input cost inflation “has now given us the opportunity to lower promotional prices across a number of our major branded products such as Batchelors Super Noodles and Mr Kipling Slices.”

Numis analysts argued that the company is “fundamentally undervalued given the strength of its branded business, scope for revenue growth both domestically and Internationally and the likely resolution of its pension deficit within the next three years”.

A rating of 10 times forward consensus earnings is hardly sickly sweet, despite being a premium to the 5-year average of 8 times. With grocery market share gains of 113-basis points taken and net debt down by £65mn, we remain bullish. Buy.

Last IC view: Buy, 133p, 19 May 2023