Premier Foods could sell its bread business for the right price, says a leading City analyst.
Commenting on Premier Foods’ half-year results which were released yesterday, Martin Deboo, an Investec analyst, said: “I think Premier would be happy to sell their Hovis bread business for the right price. The problem is: to who?
“The UK regulators would be unlikely to allow consolidation between Hovis, Warburton’s and Allied Bakeries. That leaves Private Equity, who would probably be uncomfortable with the margin volatility, or perhaps an overseas buyer like Grupo Bimbo of Mexico.”
Despite Premier Foods releasing its half-year results with underlying business trading profit up 50% to £47.4m, they revealed a drop in overall bread sales of 0.7% to £240.6m for the six months to 30 June 2013.
Total sales in the bread division, which includes milling, increased by 8.2% to £355.9m. However, its divisional contribution fell 23.8%, to £14.3m, despite milling sales increasing by 33%.
Earlier this year, Premier Foods announced plans to split the management structure of its milling business and close a mill in Barry, Wales. The mill at Barry in the Vale of Glamorgan will be closed by the end of October 2013, resulting in the loss of around 43 employees plus a smaller number of local contractors.
Deboo also spoke about Premier Foods labelling Hovis as a ‘Power Brand’. Discussing the title, given by previous chief executive Mike Clarke, he said: “Hovis has ‘Power Brand’ status for Premier, most obviously because of its size and materiality to the group - it accounts for over 20% of their total sales.”
Commenting on Premier Foods’ half-year results, Gavin Darby, chief executive, said: “Looking further forward, we will continue to drive profitably top-line growth by focusing on growing our categories supported by ongoing cost savings from reducing complexity. At the right time, we will address our capital structure.”