A City analyst has warned that Premier Foods might have to sell its power brands to significantly improve its balance sheet.
Graham Jones, executive director at Panmure Gordon, revealed the news about the Hovis bread producer ahead of the company’s publication of its preliminary results on 21 February, for the year ended 31 December 2012.
Jones said: “We see further disposals as possible, but it might take the sale of power brands to significantly improve the balance sheet, but that of course comes at the cost of reducing the cash-generating base and increasing the mismatch between the size of the company and the size of the pension liabilities.”
He added his prediction for Premier’s financial results was a 2.4% drop in sales to £1.77bn, reflecting disposals, despite an estimated 2% growth in its power brands and a 4% lift for the firm’s grocery brands.
In addition, Jones believed Ebitda would fall by 8% to £159.6m, but profit before tax would rise 60% to £92.6m due to lower financing costs.
Jones highlighted that management issues would dominate the 2012 financial results meeting on Thursday, following the surprise departure of chief executive Michael Clarke in January after just 18 months in the role, in addition to Geoff Eaton, chief operating officer, who stepped down from his position two weeks ago.
Jones explained: “The surprise departure of Michael Clarke has cast a cloud over the shares. We would broadly agree with the statement that he has stabilised the business, strengthened the balance sheet - or at least bought the company some more time - and generated some momentum in the brands.
“But chief executives don’t normally leave after 18 months if everything is going well, new CEO Gavin Darby has been out of the FMCG industry for more than a decade, and Coca-Cola is a very different company to Premier Foods. The quick departure of Geoff Eaton just served to create more uncertainty.”
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