- Food producer upgrades profit guidance again
- Positive sales momentum being sustained
- Q4 ‘beat’ driven by grocery business
Investors showed a hearty appetite for Premier Foods (PFD) today, shares in the company rising 10% to 126.4p after the Mr Kipling cakes to Bisto gravy maker delivered an unexpected full year profit upgrade driven by sustained positive trading momentum.
One of Shares’ key stock picks for 2023, the FTSE 250 branded food producer reported better than expected trading in its fourth quarter led by its grocery business, which has benefited as retailers restock after a strong Christmas selling season.
SERVING UP ANOTHER UPGRADE
In an unscheduled update, the maker of everything from convenience foods and cakes to cooking sauces and gravies said it has continued to trade strongly in recent weeks, bringing the momentum delivered in the third quarter into the final quarter of the year to March 2023.
Accordingly, Premier Foods now expects fourth quarter revenue growth to be ‘at least 10% ahead’ of the prior year and as a result, annual adjusted pre-tax profit is forecast to be ahead of the board’s expectations at around £135 million, representing 10% year-on-year growth.
The company added that net debt, which has been reduced dramatically in recent years, should be broadly in line with last year at a very manageable £285 million.
GROCERY LEADS THE WAY
Premier Foods, whose other beloved brands include Ambrosia, Batchelors, Bisto, Oxo?and Sharwood’s, insisted its grocery business ‘continues to lead the way, with broad based growth and further market share gains’.
Elsewhere, the sweet treats business has ‘demonstrated an improving trend’ and Premier Foods said its international arm will deliver ‘another quarter of strong sales growth’.
Shore Capital explained that after a strong Christmas, ‘unexpected restocking has featured in a robust overall New Year market’ and the broker upgraded its full year 2023 pre-tax profit estimate for Premier Foods by 7% to £135.3 million on the news.
Teasing that there ‘may be scope for a little nudge ahead of this level’ when the group serves up results on 18 May, Shore Capital reiterated its view that Premier Foods is ‘a high quality business that is structurally undervalued’.
Shares believes Premier Foods is a savvy way to play a decline in eating out as cash-strapped consumers focus more on affordable meals at home. UK shoppers are feeling the pinch from inflationary pressures, which could see them trade down to cheaper private label products in droves.
Yet the company is still positioned to benefit through its non-branded business, which makes cakes and desserts on behalf of top UK food retailers.
Russ Mould, investment director at AJ Bell, said the Mr Kipling cakes maker ‘continues to have an exceedingly good time with trading. The company has shown recent success wasn’t simply down to people being stuck indoors during the pandemic and feasting on sweet treats.
‘Instead, the company is enjoying the benefits of sorting out of its debt problems and being able to reinvest spare cash back into the business to make it more competitive and innovative.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Steven Frazer) own shares in AJ Bell.
