FTSE 250 stock Premier Foods (LSE: PFD) has been having a good run lately. It’s up over 15% in one month and has increased 140% during the last 12 months.
So have I missed the boat with this business? I don’t think so. In fact, I think things are just getting started for Premier Foods, so I’d buy. Last week, the company released its full-year results, and let me say, they were impressive.
Premier Foods: an overview
Premier Foods makes brands most Britons will have heard of. These include Mr Kipling cakes, Ambrosia custard, and Angel Delight whipped dessert.
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The company has enjoyed a revival during the pandemic, especially after years of ballooning debt, falling sales and a problematic pension deficit. But a rise in dining at home during the coronavirus crisis seems to have saved the day.
Total full-year revenue increased 10.3% to £934.2m. Operating profit also rose by 11.9% to £148.3m. These were large rises, which was good news for the company. It certainly helped that the business remained fully operational throughout Covid-19.
But it wasn’t only boosted by the pandemic. The company really ramped up activity last year. It launched a series of new product ranges, including healthy options. It also increased marketing investment with six major brands receiving TV advertising. And the hard work seemed to pay off.
Even net debt was reduced by 22.6%, from £429.6m down to £332.7m. I find it encouraging that Premier Foods has managed to reduce its leverage. Hopefully, the business can thrive from a stronger financial position.
Dividend
But I think the icing on the cake (no pun intended) has to be the the news about its dividend. It managed to reinstate its income payment after 13 years. I reckon this is a turning point for the FTSE 250 stock and the share price could rise further.
To me, it highlights a few things. The first is that it can afford to pay a final dividend of 1p per share. The second is that now it’s paying income to shareholders, they will expect this to continue.
Clearly, the board thinks that the company will be able to pay this in the future. If not, I assume it would have stated that it was only a special or one-off income payment. This makes me optimistic about the prospects for the firm.
Risks
Of course Premier Foods does carry investment risk. As it’s a food producer, it has to grapple with the cost of raw materials. A rise here could impact profitability.
Although, the FTSE 250 company has been a winner during the pandemic, there’s no guarantee consumers will eat at home quite so often now they can once again eat out. This could hit revenue. And the company will also have to work hard to keep up with consumer tastes, which have been evolving in new directions.
Outlook
Yet I think the future looks bright for Premier Foods. It goes into the new financial year in a stronger position, having gained a large consumer base during the past year. So far trading has been in line with expectations and I reckon more good things are still to come.
