Shares in Premier Foods plc, the UK’s largest food maker, fell by more than 3% today (3 August) amid concern in some quarters of the City ahead of the publication of the company’s half-year results tomorrow.
Premier, which owns brands including Hovis, Bisto and Sharwood’s, saw its stock slide 3.2% to 18p at the close of trading in London.
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Martin Deboo, a leading City analyst at Investec, changed his rating on Premier’s shares from ‘buy’ to ‘hold’ and forecast a 10% fall in half-year trading profits.
Deboo said Premier had seen “continued weak performance” in the second quarter of 2010 after a first quarter in which sales slid 5%. The analyst also criticised the appointment of Ronnie Bell as chairman and said Premier’s major shareholders, which include US investment fund Warburg Pincus, were not putting the necessary pressure on the company.
“We are disappointed by the appointment of new Chairman, Ronnie Bell. We would have preferred to see a corporate turnaround specialist, with a balance sheet focus, over a Grocery industry figure,” Deboo wrote in a note to clients.
“The appointment and its optics also suggest to us that Premier’s major shareholders are not playing a particularly assertive role. Given that our ‘buy’ case was predicated on activist intervention to precipitate a change of leadership and more rapid balance sheet restructuring, this is a concern.”
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By GlobalDataThe price of wheat has grabbed the headlines in recent days after a drought in Russia powered the commodity to a 22-year high. Wheat prices came back a bit today but investors will be keen to hear Premier’s thoughts on the commodity, given the fierce competition in UK bread sector. How would higher wheat costs affect the margins of a company facing the likes of Associated British Foods and Warburtons as rivals?
In April, upon announcing Premier’s first-quarter sales, chief executive Robert Schofield admitted the company’s rivals in bread had fought back in a bid to regain sales from the Hovis maker.
Deboo said today that “things are getting difficult again in bread” for Premier, “with rising wheat prices and sustained ABF aggression”.
The Investec analyst’s downgrading in the rating it gives Premier was done with “some reluctance”.
Deboo explained: “We continue to like the quality of the underlying assets within Premier, continue to be excited by its special situation qualities and prefer having a point of view on the way we think that a stock is going to move to not having one.
However, he added: “Our confidence in Premier’s trading prospects and leadership is continuing to ebb. So is our confidence that Premier’s major shareholders (Warburg Pincus, Franklin Templeton and Paulson) will turn activist and interventionist in order to recover value for shareholders as a whole.”
