Analysts have welcomed Premier Foods' confirmation of talks with potential investors as the company works to restructure its £1.8bn debt - but warned that talks were still at an early stage.
The company is rumoured to be seeking £300m to £700m of new equity to pay off some debt. Markets have responded well, with Premier shares trading at 30p, well up from a recent low of 16.25p.
"In terms of what the company needs to make a meaningful difference to its debt position, £500m feels a comfortable number," said Investec analyst Martin Deboo.
"Unlike many highly leveraged businesses, Premier is fundamentally sound. Profit margins are above average, it has a sound business model and should be highly cash generative once the integration of Campbell's and RHM is complete," he said.
"This makes it the sort of opportunity private equity investors are looking for in this climate, so Premier has a good chance of securing funding, though an equity injection of this size would mean substantial dilution for current shareholders."
An equity injection was a more desirable than selling off parts of the business, as Premier was highly integrated with operational synergies, added another analyst. A sell-off would be more suited to a company such as ready-meal maker Bakkavör, where it would be "more feasible to package off chunks and fetch a reasonable price", he said.
Bakkavör is trading normally but has appointed an advisor to look into restructuring its debt amid concerns over its leverage, as its net debt is more than 7.5 times its operating profit.
The company is rumoured to be seeking £300m to £700m of new equity to pay off some debt. Markets have responded well, with Premier shares trading at 30p, well up from a recent low of 16.25p.
"In terms of what the company needs to make a meaningful difference to its debt position, £500m feels a comfortable number," said Investec analyst Martin Deboo.
"Unlike many highly leveraged businesses, Premier is fundamentally sound. Profit margins are above average, it has a sound business model and should be highly cash generative once the integration of Campbell's and RHM is complete," he said.
"This makes it the sort of opportunity private equity investors are looking for in this climate, so Premier has a good chance of securing funding, though an equity injection of this size would mean substantial dilution for current shareholders."
An equity injection was a more desirable than selling off parts of the business, as Premier was highly integrated with operational synergies, added another analyst. A sell-off would be more suited to a company such as ready-meal maker Bakkavör, where it would be "more feasible to package off chunks and fetch a reasonable price", he said.
Bakkavör is trading normally but has appointed an advisor to look into restructuring its debt amid concerns over its leverage, as its net debt is more than 7.5 times its operating profit.
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