Analysts Graham Jones and Damian McNeela identified the three facilities after concluding that disposals were essential if the food giant is to service its net debt, which is likely to remain over £1.2bn this year.
None of the three facilities produces what Premier ceo Michael Clarke terms his power brands. Clarke has pinned his faith in the brands – Hovis, Mr Kipling, Batchelors, Bisto, Ambrosia, Sharwood's, Loyd Grossman and Oxo – to fuel the troubled firm’s financial recovery.
Most obvious
Histon is the largest and “most obvious” facility for disposal. It produces most of the UK’s leading jams and jelly under the Hartley brand.
The Histon facility also produces marmalade, sold as Golden Shred, Frank Cooper's and Rose's and Gale's honey and Sun Pat Peanut butter.
Second in Panmure Gordon’s list of the sites most likely for disposal was Knighton, which makes sweet dehydrated powder. “These brands tend to dominate their niche categories – such as Bird’s custard, which has a 79% market share, Marvel and Smash, which has a 66% market share,” said Jones and McNeela.
Premier’s Middleton site makes vinegars and pickles such as Sarson's and Haywards.
“None of these [three facilities] produce power brands, as far as we are aware, and could easily be sold as stand alone entities,” they said.
The analysts also described the potential sale of the Elephant Atta brand as being “a logical move”.
Grocery average
Since Premier discloses neither the sales nor profits of these businesses, valuing them is difficult, said the analysts. But they estimated the combined businesses had total sales of £307.5M and earnings before interest, tax, depreciation and amortisation (EBITDA) margins of 17.3% – slightly below the grocery average of 19.7%.
That left EBITA of £53M and EBITDA of £62.2M.
But even these four disposals “may have a very modest impact” on the group’s gearing or borrowing. It would reduce by 0.3 times from 4.9 times to an estimated 4.6 times next year.
The analysts said: “Even by December 2014, net debt/EBITDA for these disposals would still remain a very high 4.4 times. So these disposals are unlikely to be a panacea for Premier’s balance sheet issues.”
That meant more disposals were likely. “Milling, for example, could be sold, or one of the eight power brands could be sacrificed.
“Ambrosia, with its factory at Lifton, Devon could easily be separated from the group as could Manor Bakeries, with its three factories in Carlton, Moreton and Stoke, and Mr Kipling, Lyon and Cadbury brands.”
While the disposal of a larger priority business would represent a u-turn, it could be “the only way of making more significant in-roads into Premier’s debt mountain”, Jones and McNeela concluded.
A spokesman for Premier previously told FoodManufacture.co.uk that the firm does not comment on potential disposals.