Credit Suisse calls for Premier Foods to start delivering, cuts target price

Credit Suisse cut its price target on Premier Foods after coming off restriction on the stock, saying that management now had to show they made the right call after their "bold rejection of a potential offer from McCormick.

The Swiss bank retained its 'outperform' rating on the Mr Kipling and Oxo Cube maker but trimmed its earnings forecasts for the new financial year by 7%.

Management will need to deliver the revenue growth that formed the base of their rejection of the McCormick offer, but the fairly withering comment was that "2-4% looks an ambitious number for the company that hasn't yet delivered on the previous 1-2% target".

Premier Foods faces some short term investment costs of delivering this growth, with marketing set to rise £6-8m in the new year, which extra costs led to the cut in estimates.

However, directors have confirmed 2015/16 profits were as expected, though Credit Suisse's tracking of retail channels via AC Nielsen suggested sales remain subdued.

The rate of innovation has been picking up materially, with the Paul Hollywood range of 'artisanal style' banking flour now being sold in four major retailers, while the tie-up with Japan's Nissin also brings opportunities, analysts said.

"Nissin's presence on the register and McCormick's interest will likely keep a speculative element to the shares, though we don't see the former other than a commercial partner, albeit with a 20% holding."

On valuation, analysts declared that the equity is "highly geared into stability/growth in EBITDA, albeit the group has yet to demonstrate this - but if it can we believe the upside remains significant".