Premier Foods: limited evidence of turnaround

There is “limited evidence” of a turnaround at Premier Foods, despite its focus on Power Brands, according to a City analyst.

Martin Deboo, of Investec Securities, labelled the third-quarter interim management statement (IMS) of Premier Foods as a “mixed a bag”, despite an increase in groceries growth and a price increase in bread.

Deboo currently has a buy rating for Premier Foods with a target price of 100.0p, but he said this was under review following the update on numbers.

In its IMS, released yesterday, Premier Foods said would it not be renewing a £75m bread contract with a multiple retailer from mid-2013, because the deal had “very low margins”, was costly to service and would not affect its 2012 performance.

It also reported a rise in sales and market share for its Hovis bread brand during the last quarter, as underlying sales increased by 2% to £364.7m. Sales for its Power Brands, including Hovis and Mr Kipling, also increased by 2% to £206.1m.

However, Deboo said: “Grocery growth is similar to H1 despite a weaker prior year. So conditions remain tough and we see limited evidence as yet for any turnaround in fortunes. Our forecasts, recommendation and price target are under review; we expect to be downgrading our FY12 forecasts modestly.”

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