Premier Foods lifts FY profit outlook

Mr Kipling and Oxo maker Premier Foods bumped up its full-year profit outlook on Tuesday amid expectations that the second lockdown will underpin demand, as it reported a rise in first-half profit.

In the 26 weeks to 26 September, adjusted pre-tax profit rose 50.2% to £47.7m on revenue of £421.5m, up 15% on the first half of last year as lockdown meant more people were cooking at home.

Branded revenue grew 18.6% in the half to £367.3m, helping to offset a 4.9% decline in non-branded revenue to £54.2m.

Chief executive officer Alex Whitehouse said demand for the branded product ranges had been "exceptional", particularly in the company’s grocery businesses.

"We have seen many more meal occasions being consumed at home, particularly in the first quarter, followed by a transition towards more normal levels of demand through quarter two. During this entire time, we have continued to drive our branded growth model, launching insightful new products and supporting our three biggest brands with above the line advertising."

Whitehouse said Premier expects to see an increase in demand for its brands due to the impact of the latest lockdown.

"The longevity of this increased demand is likely to be linked to the duration of these new measures, and although we have tougher comparatives in the fourth quarter, we anticipate that trading profit for the full year will be ahead of current market expectations," he said.

Broker Peel Hunt said: "We are increasingly confident that some key themes will continue (working from home, more cooking from scratch, online penetration), which will improve longer-term growth prospects.

"We continue to see considerable potential from the improving cash generation, as well as the transfer of debt into equity. The shares have increased materially, but there is still plenty of upside as the rating reflects a more normal balance sheet. The shares are trading on 10x price-to-earnings and 8x EBITDA (including the pension deficit) to March 2022E. We upgrade our target price from 120p to 125p."

Peel Hunt rates the stock at 'buy'.