Press reports over the weekend linked Alec Gores, boss of the US private equity firm that bears his name, to Hovis, in bid that could outmanoeuvre other potential buyers PAI Partners and Sun European Partners.
Shore Capital analysts Clive Black and Darren Shirley said: “We continue to see merit in Premier Foods reducing its exposure to the low margin and, at times, struggling Hovis, while with new partners could potentially re-energise the bread operation.
“In due course, we do not rule out the possibility of Premier de-merging, spinning off or selling Hovis to shareholder benefit, although over-coming the substantial pension responsibilities should not be under-estimated …”
‘Spinning off or selling Hovis’
City analysts continue to await news of Premier Foods re-financing arrangements ,with Shore Capital predicting that a combination of a rights issue and corporate bond would be Premier Foods’ preference.
A successful refinancing package would allow the firm’s bosses to focus on day-to-day operations, said Black and Shirley. “We believe that a refinanced Premier Foods, with lower and less costly ongoing debt, embracing a more manageable banking structure, to be highly desirable for its share price.
“Additionally, with balance sheet engineering out of the way, management can firmly concentrate on ‘the day job’.”
‘Fundamental re-rating’
That, in turn, may lead to “a fundamental re-rating” of the firm’s stock. Its shares could trade on a stock multiple in the 11–13 times range, reflecting leading market positions of its proprietary brands and high teens trading margins, rather than the current low single digit multiples, they added.
Shore Capital retained its ‘buy’ advice on Premier Foods’ stock.
A spokeswoman from Premier Foods refused to comment on reports that the Gores Group was considering acquiring Hovis.
Also, the firm confirmed today (January 13) that it planned to invest £20M in a new production and packing line to boost the output of its Mr Kipling cake slices at its Barnsley plant to reach 300M a year.
Meanwhile, Premier Foods’ head of regulatory affairs, Alasdair Tucker is joining a line-up of four expert speakers taking part in our webinar Food Information to Consumers Regulation – what you need to know.
The one-hour, free-to-attend webinar takes place at 11am GMT on Thursday February 20. For more details and to reserve your free place, email Michael.stones@wrbm.com.
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