Broker snap: JPM turns neutral on Premier Foods

1st Dec 2009 13:12

Premier Foods faces a tough 2010, reckons JPMorgan Chase, but based on recent underperformance of the shares the US broker has upgraded its rating on the stock.JPMorgan (JPM) now rates the shares as 'neutral', having previously advised clients to be underweight in the stock. The upgrade is on valuation grounds, following the 23% price fall in the stock since mid-October, which has brought the share price below JPM's price target of 36p. However, JPM still thinks the foods manufacturer has a number of issues to face in 2010. 'At the macro level, disinflation and or deflation should be an issue for UK retailers, and this will likely put pressure on retailer margins and on UK food companies,' the broker said. The company will also have to do without the 'tailwind' of price inflation which inflated top line growth in 2009. The broker also sees the competitive threat from Unilever, as the Anglo-Dutch giant rouses itself from its corporate slumber.The broker is projecting 1.7% sales growth in 2010, some way below the market consensus of 3.7%. 'The brand extension strategy may help top line growth but quite a bit of those benefits were already played out in 2008 and 1H09, in our view,' JPM analyst Pablo Zuanic states.