Premier Food extends confident medium-term growth target

Premier Food said it expects to deliver sales growth of 2-4% in the coming year and in the medium term, after full year results were boosted by improved sales momentum in the fourth quarter.

After heel dragging that saw American suitor McCormick walk away despite making a premium bid, the branded food group looked to avert a shareholder revolt with a more upbeat target for the coming years.

Also, news that sales grew 1.4% in the fourth quarter was better than the market was expecting and helped boost full year sales to £771.7m in the 52 weeks to 2 April, up 0.6% on the equivalent period from the prior year, when the financial year was 15 months long.

A trading profit of £131m was exactly in line with last year, with adjusted profits before tax of £86.1m representing a 3.5% rise and adjusted earnings per share were up 4.6% to 8.3p.

Net debt was trimmed to £534.2m from £584.9m.

The company's pension schemes are now in surplus, at £105m, though there is a surplus in one and a £336m deficit in the other, and this also makes no difference to the payment schedules which are agreed through to 2019/20.

Chief executive Gavin Darby highlighted three recent strategic initiatives: expanding the sweet treat Mr Kipling and Cadbury's mini-roll range into broader convenience, extending the grocery brands into premium areas of both sweet and savoury segments within the chilled grocery sector to try and capture more of the healthy eating trend, and a planned step-change in the size of the international business on the back of its cake brands.

"We recently set out some additional strategic initiatives which we believe will further accelerate our growth," Darby said, adding that the board "now expect to deliver sales growth of 2-4% in both FY16/17 and the medium term".

Premier also announced the appointment Tsunao Kijima, managing director of Nissin, as a non-executive director with effect from 21 July, as part of the Japanese noodle giant's recent equity investment in the company.

Darby said the potential opportunities presented by the Nissin partnership were "very exciting".

Credit Suisse said the fourth quarter sales were rather better than it expected as branded sales of +1% far bettered the -1.9% forecast.

Momentum going in to 2016/17 is better than analysts expected, with the confidence borne out by the adoption of a 2-4% sales growth target.

"Certainly if the group can make this sort of progress it should be able to cover off the additional marketing costs (up £6m) and still maintain operating profit," CS said, sufficiently encouraged to increase operating profit forecast to £128m from £125m.

Shore Capital analysts said that millstone of leverage inherited by Darby still remains heavy arounds the group's neck and the period of most rapid debt contraction is likely to be behind the company.

"In the absence of a return to corporate activity, we struggle to see a near-term catalyst for sentiment in Premier Foods' stock to improve from its present low rating.

"For capital appreciation to be realised we believe that the market needs the aforementioned trading improvement anticipated by management, to come through on a sustained basis; we believe that the market will be more forgiving in share price terms should such a time arise."

The market was indeed remaining sceptical, with the shares laregely unmoved on Tuesday at 39.1p.

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