In a note published ahead of Premier Foods’ full-year results next Tuesday, Panmure Gordon director of equity research Graham Jones said: “With Greencore looking likely to miss out on Northern Foods, we wonder whether it would make sense for it to turn its attention to Brookes Avana.”
RF Brookes makes chilled ready meals for M&S from a site at Rogerstone, Gwent, and pies, pizzas and other savoury products for M&S at Wigston, Leicester. Avana makes own-label large celebration cakes, Christmas puddings and chilled desserts from factories in Newport.
What are the businesses worth?
Sales for the two in 2010 were likely to be just over £200m and, while profits were currently depressed, “a valuation of £120-140m could make sense”, argued Jones.
While Premier Foods had only just sold two businesses (Quorn/Cauldron and its East Anglian canning business) for £374m, it still needed to go further, said Jones.
“We think Premier should go further with disposals, and given its stated priorities are to grow its branded business and reduce its debt, we think Brookes Avana should be sold if a sensible price can be achieved.”
He added: “Given Premier’s key priorities are to grow its branded business and to reduce its debt, we believe it should consider participating in the current consolidation in the chilled convenience sector with the disposal of Brookes Avana.”
Premier has in the past tried to sell the two divisions - with rumours about a sale reaching fever pitch in spring 2008 - but pulled back after failing to secure sufficiently attractive offers.
Bakkavör another alternative target?
Darren Shirely, analyst, Shore Capital Group said he believed Jones' suggestion was viable: "Greencore has clearly showed an appetite to consolidate, and it's obvious that there are another couple of reasonable-sized players out there.
"You could also highlight Bakkavör, which has a big own-label presence in the UK and acquired [ready meal producer] Geest [in 2005]. So Northern Foods isn't the only potential option on the table."
As for Jones' mooted price for RF Brookes and Avana Bakeries, Shirley said: "I don't have the figures to hand, but £120-£140m sounds like 0.6 or 0.7 times sales for the two, so a figure of that type doesn't seem massively out of kilter."
Shirley added that lower sales margins at Premier's two own-label businesses - as against Northern - might also present Greencore with a good opportunity to buy-in.