Premier Foods’ H119 results demonstrate the business has become more resilient under the stewardship of outgoing CEO, Gavin Darby. Revenue growth of 1.0% in Q2 despite the hot summer was encouraging, and the UK relaunch of the Mr Kipling brand has clearly gone well. The news that Ambrosia may be sold suggests yet another step in the business transformation, although the price will determine the level of dilution and any change to net debt/EBITDA.
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Premier Foods |
A more resilient business
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Consumer |
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15 November 2018 |
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Premier Foods’ H119 results demonstrate the business has become more resilient under the stewardship of outgoing CEO, Gavin Darby. Revenue growth of 1.0% in Q2 despite the hot summer was encouraging, and the UK relaunch of the Mr Kipling brand has clearly gone well. The news that Ambrosia may be sold suggests yet another step in the business transformation, although the price will determine the level of dilution and any change to net debt/EBITDA.
No longer a winter business
Innovation has continued to deliver at Premier Foods, and has allowed revenue growth despite the unseasonably hot UK summer. The move towards greater convenience and an increased focus on products aimed at snacking continues to fit well with current consumer trends, and allowed Premier Foods’ products to stay relevant, even in the hot weather. In Sweet Treats, the relaunch of Mr Kipling led to excellent performance, with branded sales up 7% in Q2 in the division and Mr Kipling itself witnessing 13% revenue growth.
More disposals?
The company sold many brands during the tenure of prior CEO Mike Clarke, which helped to significantly reduce the company’s indebtedness. That said, not all disposals helped reduce the net debt/EBITDA figure, which remains elevated (3.6x at FY18). While disposals no doubt help to reduce complexity and more focus can be placed on the remaining businesses, clearly a lot hinges on the price that is ultimately agreed. In addition, management confirmed it is having conversations with the Pension Trustees, as any disposal proceeds from the potential sale of Ambrosia may be subject to a one-off payment to the group pension scheme.
Valuation: High debt levels contribute to discount
Premier Foods trades on 4.8x CY19 consensus earnings, which is a significant discount to its global and UK food manufacturing peer group and is due to its much higher level of debt than its peers. On EV/EBITDA it trades at c 7.6x CY19, which is still at a discount to its peers. The logistics transformation programme is undergoing some operational challenges that may affect Q3 revenues, but management’s profit expectations for the full year are unchanged. CEO Gavin Darby is due to step down at the end of January; although he leaves the business in far better shape than when he started, more recent controversies with major shareholders must have been a distraction.
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Consensus estimates
Source: Reuters I/B/E/S |
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Faroe Petroleum has announced the results of the Agar/Plantain exploration/appraisal well in licence P1763 (Faroe has a 25% interest in Agar/Plantain and 12.5% in the wider licence). The well encountered 20m of gross hydrocarbon-bearing reservoir with high net to gross ratio. Operator Azinor Catalyst estimates gross recoverable resources at 15–50mmboe, a volume expected to be commercial given available infrastructure. Assuming the partial de-risking of Agar/Plantain at mid-case 32.5mmboe (down from our pre-drill estimate of 79mmboe) to a 70% chance of commercial success would leave our RENAV broadly unchanged, but provides validation of our approach of including risked value for Faroe’s exploration programme, which made up 32.6p/share of our 185.2p/share RENAV in our recent initiation.