Premier Foods ‘no longer basket case’ after £200M spreads sale

Commenting after the firm’s £200M sale of its sweet spreads and jellies business to US multi-national Hain Celestial, Shore Capital analysts Clive Black and Darren Shirley said: “Premier Foods’ stock appears more robust with less downside.​

“It is no longer the basket case that Mr Clarke inherited. However, there is more work to do and challenges from rising input prices on commodity prices and a still challenged UK consumer and supermarket segment must still be surmounted.”​

Premier announced yesteday (August 23) that it will receive £170M in cash plus £30M in Hain Celestial shares, with the cash being used to repay some of its debt mountain of £1.27bn.

Debt mountain​

The sale includes the brands: Hartley's, Robertson's, Frank Cooper, Gales and Sun-Pat and the Histon factory where most are made.

Black and Shirley also noted that, unlike most of its small- and mid-capitalised peers, Premier does not offer the prospect of an income stream and “is unlikely to do so for some time”.​

The sale, as with most of Premier’s disposals, will dilute earnings per share. But Premier claimed the business disposals will unlock further cost cutting, which it expects “to ameliorate the bottom line pain in 2013”,​ said Shore Capital.

The analysts said this was a key deal because it represented “the lion’s share of the disposal proceeds that the business is committed to making in order to comply with the agreement that it has with its financiers​”.

Ahead of deadline​

That deal specified inflows of £330M by June 2014 with 80% (or £264M) recouped by December 2013. The latter target has now been met 17 months ahead of the deadline, said Black and Shirley.

Also, the disposal would bring simplification, which should allow management to focus on building its Power Brands − Ambrosia, Bachelors, Bisto, Hovis, Loyd Grossman, Mr Kipling, Oxo and Sharwood’s − and cutting its central overheads, they added. Accomplishing that may, in due course, lead to growth in earnings.

Shore Capital retained its ‘hold’ advice on the group’s stock.

Premier boss Michael Clarke said: "This divestment is a major step forward in our strategy to simplify the business and focus on our Power Brands. Following completion of this sale, we will have raised around £275M of the £330M disposal proceeds that we committed to achieving by June 2014. This will represent a 22% reduction in our net debt since the half year.”​

In the UK, Hain Daniels portfolio includes the New Covent Garden Soup Co and the Linda McCartney brand.

For more on Premier’s latest sale, click here​.

To read the analysts’ verdict on Clarke’s first year at the helm of Premier, click here​.

For Clarke’s own assessment earlier this month, click here​.