Premier Foods shares surge following upgrade to expectations

Premier Foods shares surged to 12-year highs this week after the ambient supplier beat upgraded expectations as price rises and cost savings mitigated “exceptionally high” input cost inflation.

Despite research from The Grocer showing average year-on-year price hikes on leading brands every bit as punchy as those of Heinz – including Ambrosia Rice Pudding (+76%), Sharwood’s Butter Chicken (+68%) and Mr Kipling Angel Slices (+57%) [The Grocer/Assosia 18 May 2023] – CEO Alex Whitehouse this week insisted price hikes were the last resort.

“We’ve used forward buying and hedging contracts, and worked hard to offset price increases with millions of pounds in cost savings. Only then, and really reluctantly, have we increased prices.” Whitehouse also pointed to increased investment in promotions and marketing.

Strong second half

Nonetheless the benefits of its pricing action filtered through into a strong second half in Premier’s annual results. Total sales increased by 11.8% in the year to 1 April to just over £1bn, with first-half revenue growth of 6.6% accelerating to 15.8% in the second half.

Grocery sales were up 5.3% to £746.8m, with branded revenue up 13.4% to £635.3m driven by booming sales of its Batchelors and Nissin noodles ranges. Its sweet treats division had a tougher time, with sales volumes leading to a 2.4% fall in branded revenues to £208.9m, but pricing-driven 30.5% gains in private label brought the division up 2.7% overall. Strong top-line growth was matched on the bottom line, with trading profit up 11.5% to £157.5m, as it maintained margins.

Statutory profit before tax was up 9.6% to £112.4m, as sales growth was mitigated by a rise in corporate costs due to wage and salary inflation and £11.1m of restructuring charges, largely related to closing its Knighton manufacturing site.

A bullish Premier was “well placed” to make further progress, pointing to “strong” NPD plans and more potential M&A after last year’s The Spice Tailor acquisition.

Pensions turnaround

Jefferies welcomed“continued share gains” and a better than expected Q4. It also highlighted further improvement the turnaround in its pensions position – moving to a £297m surplus in its pension surplus from a historic deficit– meaning its lower funding requirement of £6m a year was worth 15p per share of notional equity value.

Shore Capital added that “for Premier’s brands to gain share where private label is winning hand over foot is immensely impressive”, adding that the performance makes its shares “materially undervalued”.

Peel Hunt added: “Pricing action has already been implemented, and so the focus turns to optimising performance and driving volumes. The performance should also be helped by further investment in marketing of key brands combined with brand extensions and new product categories.”