Broker snap: Credit Suisse sees 'substantial upside' at Premier Foods

27th Aug 2013 10:16

Credit Suisse has lifted its recommendation for food manufacturer Premier Foods from 'neutral' to 'outperform' and raised its target price from 100p to 155p.This Swiss bank said that Premier Foods has begun to stabilise and is even beginning to show some signs of growth. It said: "Valuing a business that is structurally over-indebted where profit expectations are falling is nigh on impossible - a deteriorating profit outlook simply crushes the equity value (now only 17% of the enterprise value)."However if the profits have stabilised and can even show some growth, then the reverse is true - the equity leverage into a profit upturn is material."Based on current capital structure, Credit Suisse reckons that - if the valuation multiple remains unchanged - just a 10% increase in underlying earnings would translate into a 55% jump in the equity.Nevertheless, it did said that the current capital structure is unlikely to hold and equity issuance will probably come ahead of a refinancing."With potential for substantial upside gearing in the shares, we lift our rating to 'outperform'," the Swiss said.The stock was 6.39% higher at 131.92p by 10:48 on Tuesday.BC