Premier Foods’ H119 results demonstrate the business has become more resilient under the stewardship of outgoing CEO, Gavin Darby. Revenue growth of 1.0% in Q2 despite the hot summer was encouraging, and the UK relaunch of the Mr Kipling brand has clearly gone well. The news that Ambrosia may be sold suggests yet another step in the business transformation, although the price will determine the level of dilution and any change to net debt/EBITDA.
Innovation has continued to deliver at Premier Foods, and has allowed revenue growth despite the unseasonably hot UK summer. The move towards greater convenience and an increased focus on products aimed at snacking continues to fit well with current consumer trends, and allowed Premier Foods’ products to stay relevant, even in the hot weather. In Sweet Treats, the relaunch of Mr Kipling led to excellent performance, with branded sales up 7% in Q2 in the division and Mr Kipling itself witnessing 13% revenue growth.
The company sold many brands during the tenure of prior CEO Mike Clarke, which helped to significantly reduce the company’s indebtedness. That said, not all disposals helped reduce the net debt/EBITDA figure, which remains elevated (3.6x at FY18). While disposals no doubt help to reduce complexity and more focus can be placed on the remaining businesses, clearly a lot hinges on the price that is ultimately agreed. In addition, management confirmed it is having conversations with the Pension Trustees, as any disposal proceeds from the potential sale of Ambrosia may be subject to a one-off payment to the group pension scheme.
Premier Foods trades on 4.8x CY19 consensus earnings, which is a significant discount to its global and UK food manufacturing peer group and is due to its much higher level of debt than its peers. On EV/EBITDA it trades at c 7.6x CY19, which is still at a discount to its peers. The logistics transformation programme is undergoing some operational challenges that may affect Q3 revenues, but management’s profit expectations for the full year are unchanged. CEO Gavin Darby is due to step down at the end of January; although he leaves the business in far better shape than when he started, more recent controversies with major shareholders must have been a distraction.