Investec raises Premier Foods rating to 'buy', warns revenue lift could be short-lived

17th Jun 2015 10:26

Investec has lifted its rating for Premier Foods from 'hold' to 'buy', but warned the group's revenue improvement could be short-lived. Premier Foods shares traded at 41.93p, up 2.91% on Wednesday at 10.34, after the broking firm increased the food manufacturer's price target from 47p to 51p.Investec increased its forecasts for next year by 2% on trading profit and 3% profit before tax, on the back of improved sales trends in the fourth quarter.The broking firm said while revenue lifted, it is still early days in the company's turnaround plan."The improvements in revenue we have seen could prove to be short-lived if competitors react aggressively to their share loss or successfully copy some of the group's innovation," Investec said in a note.Investec said the underlying grocery market has improved, and increased investment in new packaging, brands and product launches had boosted the Premier Foods' business.It noted the marketing budget for the year to March 2015 had been increased £25m to £33m without an impact on operating margins."If the group can continue to show revenue progress at no cost to margins then we would expect the rating to improve through the course of 2015/16," Investec said.