Shore reiterates 'buy' rating on Premier Foods

(Sharecast News) - Shore Capital has reiterated its 'buy' recommendation on Premier Foods and upped full-year profits forecasts following a string of positive announcements from the owner of Mr Kipling.
Premier unveiled strong final numbers last week, boosted by home cooking during the pandemic, and announced it would resume dividend payments after a 13-year hiatus.

That was then followed by confirmation that it had priced its £330m fixed rate note refinancing programme at an annual interest rate of 3.5% with a semi-annual coupon payment.

Said Shore Capital: "Such a rate is well below a range of around 4.5% to 5.0% that we felt could be achieved, and reflects very well indeed upon the major change the group has engineered with respect to the improvement in the quality of its solvency ratios, including the simplification of its pensions position, change that brings with it further optionality to deliver shareholder benefits on an ongoing basis."

The new notes will replace the current 6.25% FRN, which will be redeemed next month. "Accordingly, this development will result in a further £8m reduction in its financing costs and so increases its full-year 2021/22 expectations for adjusted profit before tax," Shore Capital noted.

As a result, the broker has upgraded its pre-tax profits estimates by 7.2% to £119.6m for 2022 and by 8.1% in 2023, to £126.9m.

It added: "Premier's equity trades on even lower ratings following the upgrades, ratings that we believe are simply too low.

"With an ongoing focus upon supporting its brand portfolio in the UK and now a little further afield, plus the scope for complementary bolt-on acquisitions and return to the dividend roster, Premier's equity valuation continues to be anomalous to us, even taking into consideration the strong appreciation over the past year.

"It leads is to underscore our view that a normalised business with an improved outlook could and should be trading on earnings multiples in the mid-teens range. Hence following the FRN update we reiterate our 'buy' stance."

Shore Capital has a price target of 102p on Premier, which along with Mr Kipling owns Ambrosia, Angel Delight, Bisto, Homepride and Oxo, among other brands. As at 1230 BST, shares in the firm were ahead 5% at 106.6p.