UK: Mixed City reaction to latest Premier sale

By Dean Best | 23 August 2012

Premier Foods' latest planned disposal - the sale of its spreads business to Hain Celestial - has been met by a mixed reaction from analysts, with concern remaining over the UK food group's future.

US food group Hain Celestial announced yesterday (22 August) it has agreed a deal to buy Premier's spreads assets, including brands like Hartley's and Sun-Pat, in a cash-and-shares deal worth GBP200m.

The sale, if approved by Premier shareholders and lenders, will follow other recent disposals by the company. This year, it has sold its vinegar and sour pickles business to Japanese group Mizkan and ethnic food business Elephant Atta to Associated British Foods. The disposals are part of plans to reduce Premier's debt and refocus the business.

Analysts at Panmure Gordon said Premier had received a higher than it expected price for the spreads unit but insisted the UK group was still in a "sticky situation".

"The company has raised proceeds of GBP275m and is undoubtedly making good progress towards its disposal proceeds target of GBP330m by June 2014. At the interims the company also indicated that cost savings were ahead of plan which should help ease the dilution impact of disposals. However post the transaction we forecast that net debt/EBITDA will fall from 5.45x to 4.93x in FY2012 but will rise from 4.78x to 4.99x in FY 2013 and as such we believe that the business remains in a precarious position," the analysts wrote in a note today.

Shore Capital analyst Clive Black acknowledged the deal was "another earnings disposal".

Black said the spreads arm recorded sales of GBP165m and trading profits of GBP36.1m in 2011. Margins were 23.3%.

"Premier is selling this division on a revenue multiple of 1.2 times (x) and an EBITDA ratio of 5.2x, which we deem to be reasonably undemanding exit multiples," Black said.

However, Black said the sale to Hain was an "important move" to meet Premier's commitments to its lenders and he pointed to the company's plans to cut costs throughout the group.

"As is the case with the majority of Premier’s disposals, it will be EPS dilutive although management does reiterate previously made points that these business disposals will unlock further cost cutting, which it expects to ameliorate the bottom line pain in 2013," he said.

"The further stage of the necessary re-engineering by Premier is welcome. A cursory glance at the group's recent interim results revealed the complexity of the business. Simplification should allow management to focus on the ongoing job of building its core brands and cutting its central overheads, tasks that may in due course lead to growth in earnings."

Sectors: Condiments, dressings & sauces, Mergers & acquisitions, Private label

Companies: Hain Celestial, Mizkan, Associated British Foods

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