City puts £120-180m price tag on Premier Foods' canning sites
Speaking to FoodManufacture.co.uk ahead of Premier's full-year results (due on Feb 15), Panmure Gordon director of equity research Graham Jones said it was very difficult to put a price tag on the business because it had never been a standalone operation.
He added: "For a start, we don't know exactly what the profits are, so while we can talk about a multiple of six times EBITDA (earnings before interest, tax, depreciation and amortisation), we don't know exactly what that would come to.
"But as there are brands produced at the sites [Loyd Grossman pouches and Branston Beans] they would also have to come to some kind of co-manufacturing or licensing arrangement with the buyer, which would impact the price."
He added: "It's actually a bigger operation than many people think with sales of around £325m with an operating margin of around 8.5%. I'd say if they were realistically going to get £200m out of the sale, that would probably be reflected in the share price already, and there is no evidence of that.
"But I think £120m [a conservative estimate made this morning by Investec Securities analyst Martin Deboo] sounds a bit low."
Much less lucrative exit than Quorn?
Either way, selling Wisbech and Long Sutton, which employ more than 1,000 staff making Loyd Grossman sauces in pouches, plus canned beans, veg, puddings, soups and pasta, Fray Bentos pies, would offer a “much less lucrative” exit than Quorn, said Deboo.
“We expect this to be a much less lucrative exit than Quorn, pound for pound, and have been anticipating something like a £120m disposal at a multiple of six times EBITDA.”
The sale of Quorn, meanwhile, had netted more for Premier than predicted, he observed. “The exit valuation of £205m was substantially above our forecast of £160m, made in November 2010. The result is that Premier has exited what has proved to be a troubled business under its ownership for a higher multiple than it paid for it (10 times EBITDA) in the booming market of 2005."
He added: “Detractors will argue that Premier has ‘sold growth.’ We don’t agree. Premier, to our eyes, is a business whose most urgent problem is its balance sheet. In these circumstances, disposing of the highest EBITDA multiple businesses one can must surely be the right strategy.”
Rumours of an imminent sale
An announcement about the sale of the canning sites is expected within days.
One source at Wisbech said rumours had been flying around for weeks that a sale was imminent, but many staff now expected an announcement next week (Premier also publishes its full-year results next Tuesday).
He added: “We heard last Friday that we were going to be called into a meeting, but it never happened. Nothing has been said to us formally, although the company line is that they are in discussions over the sites.”
Weak trading
As for current trading, data from Nielsen suggested that Premier’s top line growth remained weak, claimed Deboo at Investec.
“Analysis of our Nielsen data suggests that Premier’s top line in the critical fourth quarter [which represents c.30% of annual sales and c.45% of annual profits] has remained soggy. Our best view is therefore that Premier’s top line growth in Q4 continues to be negative and continues to decelerate.”
Bread pricing
As for bread, having spent some months entwined with rival Kingsmill “in some sort of pricing death spiral up to the end of the third quarter”, Premier had abruptly changed tack in the fourth quarter, “from one of aggressive promotion and volume share maintenance to one of price realisation”, he said.
“Share of volume sold on promotion appears to have halved, from about two-thirds to about one-third, and average price per unit sold has increased by about 10%.”
The motivation for this move has, presumably, been the need to recover rapidly rising wheat prices, he said. “However, it is a move that Premier has made on its own thus far, suggesting that the critical priority for the company in the fourth quarter has been defence of margins.”
Full-year results due Feb 15
The big question at the results next week will be whether Premier has boosted profits on the back of operational cost savings, or because it has sacrificed top line sales growth in a bid to claw back some margin, he said.
“We are concerned that Premier might have targeted margin too aggressively in the fourth quarter, to the detriment of momentum in full-year 2011.
"Certainly in the key business of bread there has been a sharp reversal of promotional strategy to the benefit of prices but the detriment of volumes.”
