23.01.2025
Last Tuesday morning saw one of the UK’s largest food businesses reporting its Q3 Trading Update for the 13 weeks to 28th December 2024 – it was really quite positive and continues to highlight the attractions of its shares.
Premier Foods (LON:PFD) stated that with a third quarter of very good volume led branded revenue growth and further market share gains, the group is now guiding Trading profit to be at the upper end of expectations for this financial year.
Looking further ahead, it expects to deliver further progress against its growth strategy, with sales trends to be more balanced between volume and price.
The Business
Premier Foods declares that it is passionate about food and that it believes that each and every day that it has the opportunity to enrich life for everyone.
The group employs over 4,000 people operating from 13 sites across the country, supplying a range of retail, wholesale, foodservice and other customers with its iconic brands which feature in millions of homes every day.
We all know or recognise its products, including some of the nation's best-loved brands, including Ambrosia, Batchelors, Bisto, Loyd Grossman, Mr.Kipling, Oxo and Sharwood's.
Management Comment
CEO Alex Whitehouse stated that:
"We are pleased to report another very good quarter of volume led branded revenue growth, accompanied by further market share gains, as our branded growth model continues to deliver well for us.
Our Sweet Treats business had a particularly strong Christmas with branded sales up 8.9%; Mr Kipling sold 20% more mince pies this year, delivering its biggest ever quarter.
Earlier this year, we said that consumers are starting to trade up and treat themselves more.
This has continued over Christmas with our premium ranges such as Ambrosia Deluxe desserts, Bisto Best gravy and Mr Kipling Signature Brownie Bites performing strongly and we more than doubled the sales of our Mr Kipling Signature mince pies.
Our acquired brands, The Spice Tailor and FUEL10K, both delivered double digit sales growth, as we leverage our product innovation capabilities and commercial relationships to unlock their potential.
Ambrosia porridge pots and Cape Herb & Spice were standout performers of the 38% growth in new categories in the quarter, while all our target overseas regions delivered further strong progress as International sales increased 29%.
Having delivered very good volume led, branded revenue growth in our key third quarter, we're now guiding Trading profit to the upper end of expectations for this financial year.
As we look to the rest of FY24/25 and to the medium term, we expect to deliver further progress as we continue to execute against our five pillar growth strategy."
Broker’s View
Analysts Clive Black and Darren Shirley at Shore Capital Markets rate the group as a very attractive ongoing equity growth story with potentially many years to run with considerable upside.
They noted that “Pleasingly, FY25 Trading Profit guidance is raised to the top of the prevailing range (c£180-186m), permitting us to upgrade our estimate by c3%, consensus should nudge higher too.”
Their estimates for the current year to end March 2025 look for revenues to rise to £1,150m (£1,109m), with adjusted pre-tax profits increased to £164.4m (£155.6m), generating earnings of 13.9p (13.2p) and paying out a 2.1p (1.7p) dividend per share.
For the 2026 year they see £1,184m sales, £217.9m profits, earnings of 14.6p and a 2.5p dividend.
The 2027 estimates show £1,220m sales, £180.5m profits, earnings of 15.3p and a 3.0p per share dividend.
My View
In November last year the group’s shares were up to 198.40p, a sixteen-year High.
They subsequently fell back to 172.80p on Tuesday of last week, before edging up again on the back of the positive Q3 Trading Statement.
I now look for the shares to break above the 200p level and then trade in the 210p to 225p range – whether that occurs before the 2024 Finals are released in May is the big question.
Now at 185.20p, valuing the group at £1.6bn, the shares are a very Strong Hold.
(Profile 29.06.20 @ 67.50p set a Target Price of 101p*)
(Profile 01.11.23 @ 117.50p set a Target Price of 152.75p*)
Asterisks * denote that Target Prices have been achieved since Profile publication.
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