Friday tips round-up: Premier Foods, Travis Perkins

25th Apr 2014 10:29

Yesterday's trading update from Premier Foods showed the daunting task which management at the firm faces. Yes, it recently carried out a capital restructuring, involving a 353m pound rights issue, selling 500m pounds in high-yield bonds and securing a new 272m pound borrowing facility. In parallel, it renegotiated its pension fund liability payments. However, total sales dropped by 6.2 per cent and by 3.5 per cent at its 'power brands' over the last quarter. As well, its debt, while now reduced, continues to dwarf its market capitalisation. Then there is the pension deficit. Payments have been postponed, but it's still there - and growing. Hence, the aforementioned capital restructuring looks like a case of "rearranging the deck chairs on the Titanic". "Investors remain largely at the mercy of the banks and pension funds," so 'sell' says The Daily Telegraph's Questor column. Travis Perkins' first-quarter figures came in well ahead of last year's but it remains to be seen how much of that was not due to favourable 'base effects' linked to the dreadful weather seen in the spring of 2013. Furthermore, it remains to be determined by just how much the company is benefitting from the sharp rise in new build. The company says that if comparison is made with the less weather-impacted spring of 2012 then like-for-like sales grew by 9.3%. Given that there is usually a nine-month lag between housing transactions and sales of goods for repair and maintenance, then the benefit of last summer's strong housing market may not yet have fed through. As well, management has ambitious financial targets for over the next four or five years, which will involve investment in new stores, and adding specialist areas, such as tools and kitchens, to existing ones. Furthermore, its Wickes website has been upgraded. Even so, the fact that the shares are trading at 15 times earnings suggests that further progress may be limited, "though they at least warrant a 'hold'", says The Times' Tempus. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB