A leading City analyst has warned Premier Foods that it needs to stabilise its trading fast in order to survive the next 12 months. According to Martin Deboo, analyst at Investec Securities, the manufacturer, which owns the Mr Kipling and Hovis brands, needs to secure healthy profits during 2012, after the company announced in an unscheduled trading statement last Tuesday (17 January) that it was looking to double its cost reduction target to more than £40m by 2013.
Deboo said that the 20%-plus share price bounce, on what amounted to a further profit warning, supported its thesis that "it is the growing prospect of a successful refinancing not current trading that is fuelling the share price".
"But we now have H2 trading profits down by nearly 40%, relative to 30% in H1, which at the time was characterised as a (semi) annus horribilis," he added.
Premier Foods said it was looking to save costs throughout the company, partly by cutting 5% of its 12,000 strong workforce around 600 employees. It also announced it would double the marketing spend behind its eight Power Brands, including dedicated TV advertising for its Mr Kipling and Hovis brands in the first quarter of 2012.
Deboo said: "The news on increased marketing investment is good, but we doubt this will pay back too quickly. The prospect of a refinancing and further disposals keeps us on board the rollercoaster."