Premier Foods plc this morning (23 April) saw its share price climb as it revealed an increase in group sales in the first quarter. The Hovis maker said its cost savings plan was on-track and that it has the right strategies in place to make further progress this year. CEO Gavin Darby outlined three areas in the business where he felt complexities could be taken out. Here, analysts give their views on today’s sales update.

Shore Capital analyst Clive Black

“Premier Foods has delivered a solid performance in the first three months of its 2013 financial year in our view. We note Premier’s particular pleasure with the grocery power brands growing for a fifth consecutive quarter, so trading effectively against more challenging comparatives. What Premier calls non-branded sales fell by 5% to GBP52m, but an important point to note here is that private label is a structurally lower component of the group’s activities now and, as such, the predominance of proprietary brands should to our minds be a source of support for the stock’s rating. 

“With respect to the UK grocery market in general, we noted the comments of Mr. Darby on some interesting and potentially important movements. Whilst not wishing to over-state matters, and Mr. Darby was not speaking of any material return in consumer confidence, we did note his comment that there is some modest evidence of multi-buy promotional activity returning versus single item pricing. We will keep an eye on this point and overall promotional participation, but there may be some better news ahead on this front, supporting suppliers’ margin. We also took comfort from Premier’s CFO, Mark Moran’s, comment on input pricing that it ‘looks a more benign environment’.”

Panmure Gordon analyst Graham Jones

“We see it as crucial that Premier delivers its cost savings to the bottom line this year, so it is reassuring to read that both the SG&A cost saving programme (which is targeting GBP20m of savings) and the bread restructuring (closing three bakeries, two distribution centres, a mill and substantially reconfiguring logistics) are progressing to plan.

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“The trading environment remains difficult, but the full-year outlook is unchanged and we are not changing our forecasts today. We remain concerned that the balance sheet remains over-geared despite the significant disposals over the past 18 months, and we think a further equity raise could be required to put the company on a more sustainable path. As such we maintain our ‘sell’ recommendation.”

Investec analyst Martin Deboo

“This is a solid result to our eyes. While Premier were benefiting from an exceptionally cold Q1 and were carrying strong sales momentum out of Q4 (we estimate c.6% growth on power brands in Q4), they were also lapping a tougher growth comp on power brands than in Q2 & Q3.

“Premier have posted their fifth consecutive quarter of power brand growth in what for us adds up to a solid, business as usual quarter. Which is arguably exactly what Premier need to evidence their rehabilitation, after January’s revolving door. Cost savings and marketing plans remain in place, leaving the current restructuring of bread as the key near-term risk. We envisage no change to our forecasts and remain happy buyers.”