Premier bank deal reduces liquidation risk, says Investec

In a note published as Food Manufacture.co.uk went to press, Investec said: “The market has under-appreciated the significance of the covenant deferral.​

“We see this as a significant disclosure, in that it reduces the probability that Premier will enter liquidation. It also creates breathing space for the new team to focus on Christmas trading and a more general recovery plan​”, the firm added.

Investec had upgraded its rating for the struggling firm from “hold​” to “buy​” with a target price of 15p this morning (November 9).

Analysts at the firm said Premier had a plausible equity value of 20p in six months, with better than a 20% probability of realisation that the share price is currently discounting.

Legitimate place​

“The resultant risk/reward gives Premier a legitimate place in a special situation portfolio for us​”, they added.

Premier Foods announced on November 7 that its banking syndicate had agreed to defer a covenant test scheduled for December 31 as discussions about refinancing the firm’s debt continue.

Many experts have predicted that the firm’s banks would require disposals from the firm following the agreement. A further profit warning in January was likely and the deal was “about buying time​”, it is believed.

Martin Deboo, an analyst at Investec said that although the risk of the firm going into liquidation was “far from zero​”, new ceo Michael Clarke now has a “toehold on the sheer rock face he has to climb​.”

“The share price and valuation are at a low and Premier is under new management. We now know the banks don't seem to want Premier to fail and we suspect that, ultimately, neither do the retailers​,” he concluded.