Broker snap: Some bright aspects to Premier Foods

27th Apr 2010 10:55

Premier Foods finds itself in a bit of a pickle after reporting a 5.1% decline in first quarter sales but FinnCap sees some elements of cheer in a generally downbeat trading statement."The good aspects to the update today are that H1 [first half] net debt is expected to be £100m lower (which compares with past pointers to a reduction of this order YoY [year on year], so perhaps full year debt reduction will now be better) and branded volumes have grown by 2.2% outpacing market growth in the categories Premier operates in of 0.8% so share growth has been achieved," analyst Charles Pick notes.Comparative figures for revenues from own label operations will also become less demanding as the year progresses, reflecting the group's decision in the second half of last year to discontinue some lines."On the debit tack, group sales are 5.1% lower, comprising slippage from branded sales of 0.3% and from non-branded of 12.9% with poor performances from the Core (-1.1%) and Defence (-6.7%) brand categories and even the Drive brands (where marketing resources are being focussed) have only increased Q1 sales by 3.4% due to volume growth of 6.6% being offset by an adverse mix/price effect of 3.2%," Pick adds. The group has revealed that £9.3m higher aggregate first half restructuring and marketing costs will lead to a lower first half earnings before interest and tax result. "So growth will necessarily be H2 [second half] skewed which may lead analysts to worry about the validity of their forecasts e.g. we have been assuming £14m YoY EBIT progress to £323m but will this be feasible if it needs an £18m-£20m H2 rise?," Pick wonders.Though the absence of a dividend is a drawback FinnCap thinks the shares are worth holding as they current trade on a projected price/earnings ratio of 6.