Investment bank and stockbroker group Shore Capital announced early this week that since its initial assessment of Premier Foods, the situation for the Hovis manufacturer had become "more dire".
Analyst Clive Black at Shore Capital told British Baker that bread brands were suffering as pressure from supermarkets continued to keep prices down. "Input price pressure and a lack of output price power are a source of strategic concern," he said.
On Monday, Shore Capital reiterated its "sell stance on Premier Foods stock". This followed a document it sent to investors, examining Premier’s £1.75bn debt burden, £89m pension deficit, its rocketing input costs (including wheat, petrol and energy) and competitive retail environment.
"The story since the acquisition spree last year has been disappointing; most clearly manifested in the share price," according to Shore.
Shares plunged 20% to 85.25p at one point last Friday, before closing the week 9% down at 108.75p. "Friday was a volatile day of trading, which at times surprised us in the magnitude of the markdown of the stock," Shore Capital told investors.
In its defence, Premier Foods issued a statement, which said that it had complied with all of its banking arrangements and that it would not be contemplating a rights issue, a way in which a company can sell new shares in order to raise capital.
Martin Deboo, market analyst at Investec, told British Baker: "Warburtons and Associated British Foods are upping the promotional ante against Premier Foods." He said promotional activity would be hard to sustain because "all the players have the same cost pressures and the rising price of North American wheat will start to hit Warburtons in particular".