Food company RHM, producer of Hovis bread and Mr Kipling cakes, expects to be valued at up to £975m (US$1.54bn) in its London flotation in two weeks, well below earlier expectations, according to the Reuters news agency.
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RHM said on Tuesday it would sell shares in the initial public offering at between 228 pence and 285 pence each, valuing the whole company at £875m to £975m.
Sources close to the situation had previously expected the company to attract a price tag of between £1bn and £1.3bn and some estimates expected the company to be valued at as much as £1.5bn.
“The message must have come back pretty strongly that the price range originally indicated was way too high,” one analyst said.
The lower price partly reflects a sizeable discount for IPOs in a jittery market and also challenging conditions for food makers as the big retailers squeeze margins.
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By GlobalData“The competition in food retail at the moment has meant that pricing in the industry is a lot more challenging and competitive and in our view there’s no particular reason why the outlook is going to change … Tesco is not going to take its foot off the gas,” said Justin Scarborough, analyst at Panmure Gordon.
“So the food manufacturing industry in the UK is going to remain under a bit of a cloud and under some pressure,” “
He said RHM’s lower valuation is more realistic relative to sector valuations and dividend yield characteristics and the industry growth prospects.
RHM is due to list on London’s main market on 19 July.
