Shares digital

Premier Foods (PFD) – Finals PTL: £73.5m (PTP: £59m) Divi: 6.5p (12p)

When Premier acquired RHM last March the market’s immediate enthusiasm pushed the shares up to over 300p. Reality subsequently intervened pushing the shares below 100p. The deal increased the group’s borrowings substantially. More importantly RHM’s bread interests were losing share and were hit by high wheat prices. They suffered a 48% decline in profitability due to lower margins. Premier’s working capital requirements rose due to higher commodity prices.

The group is still suffering delays in recouping increased costs. Premier had exceptional costs of £158.7 million last year. While these were responsible for the overall loss, underlying trading was unexciting. Adjusted earnings fell by 3% to 15.5p.

The immediate outlook is uncertain. Soft commodity prices are a continuing problem and bread profits are forecast to fall in H1. Capex is being ‘re-phased’, promotional activity will be ‘limited’ and dividend growth will certainly also be limited.

Shares says: The above average yield and director buying may provide a prop.

by: John Marshall