Is Premier Foods going to swallow other companies quickly enough to stop itself being taken over? That is the calculation facing potential investors as the global food industry shakes off the inflation shackles to move into a probable period of sustained growth.
There is no doubt about Premier’s attractions. It owns a clutch of top-class brands such as Sharwood’s sauces, Batchelors soups, Bisto gravy granules and Mr Kipling, Britain’s number one cake brand. In September it launched a five-month, £2.7 million television advertising campaign on the theme “Made with Oxo, Made with Love” to capitalise on the stock cube’s peak sales season.
The company originated in 1975 as Hillsdown Holdings, founded by the late entrepreneur David Thompson and his partner Harry Solomon. In 1990 it bought Premier Brands and was renamed. After nine years the group was bought by private equity and refloated on the stock market in 2004. It bought RHM, the former Ranks Hovis McDougall, two years later.
It is heavily biased towards the UK, where it registers more than £1 billion in annual sales, while Europe and the rest of the world take £35 million each. But it is making progress with Mr Kipling and Spice Tailor Indian and Asian cookery kits in the most attractive and competitive food market of all, the US.
Premier’s output is split 75-25 between groceries and sweet treats. The big producers can make virtually anything the public wants, so the trick is to anticipate changes in taste, from protein-laden porridge to mini cakes. Loaf cakes and instant soup are the latest must-haves.
For the year to last March 30, revenue and adjusted pre-tax profit rose 15.1 per cent to £1.1 billion and £157.9 million respectively, although earnings per share grew only 6.4 per cent to 13.7p. Net debt was trimmed by £38.7 million to £235.6 million.
In the first three months of the current year, sales rose 5.3 per cent, led by the branded grocery category’s 8.6 per cent increase. Branded sweet treats rose 3.5 per cent. International sales were 24 per cent higher, helped by a soft comparison in the same quarter last year, when the Australian cake trade was destocking. The business is generating strong cashflow for investment and potential acquisitions, helped by this year’s suspension of annual pension deficit contribution payments, which had absorbed £33 million in 2023-24.
The Maryland-based McCormick & Co tried to buy Premier in 2016 and was rebuffed. Instead, the UK firm agreed to distribute products for Nissin Foods Holdings, Japan’s instant noodle group. Nissin in return invested in Premier, now has 24.2 per cent of its shares and shows no sign of slackening its buying orders, a useful support for the Premier share price. That stake is a vital platform for a would-be bidder, Nissin or anyone else.
The table is laid for a possible three-way deal. Premier’s £1.6 billion market capitalisation is well within the reach of Nissin, valued in Tokyo at £6.3 billion. And it would be a mere snack for the likes of America’s General Mills, worth £30 billion, or Kraft Heinz (£33.5 billion).
This column tipped Premier last Christmas at 136p and the shares have spent this year rising steadily to a peak of 193p, now 190p. Has that put them out of reach of bidders? Probably not as, according to the broker Peel Hunt, they are still on a modest 13.8 prospective price-to-earnings ratio for the year to next March. Peel’s people say: “We see room for further upside in the rating as the company demonstrates its growth model and delivers strong free cashflow.”
Meanwhile, Premier is hunting companies to buy, especially abroad, where existing UK brands can be rolled out and foreign morsels recycled to the UK. Analysts at Barclays say: “On our numbers there is £100 million-£150 million cash that can be used for M&A, investment or dividends and would still keep Premier below its medium-term leverage goal of 1.5 times ebitda.”
First-half results, due next week, should confirm further progress. Despite being as low as 20p during the pandemic, the shares still seem undervalued.
Advice Buy
Why A solid performer in branded food, surrounded by potential predators
Ocean Wilsons
Two of the London stock market’s quirkier companies are about to be simplified. Ocean Wilsons is to sell Wilson Sons, Brazil’s largest port and maritime logistics operator, for $768 million, or $593 million after tax and fees. “A meaningful proportion” will go to shareholders through dividends, share buybacks or both.
Assuming Ocean does not place another huge bet on a single company, investors will be left with an idiosyncratic but relatively straightforward investment proposition.
The story does not end there. Ocean’s portfolio manager is Hanseatic Asset Management, which owns Hansa Investment, a listed firm that owns 26.45 per cent of Ocean. An associated concern, Hansa Capital Partners, owns an identical amount, making a total of 52.9 per cent.
William Salomon, a 67-year-old career banker and investor, owns 12.5 per cent of Ocean and 4.5 per cent of the “A” non-voting Hansa shares, as well as 28 per cent of the voting shares. Two other entities, Nomolas and Victualia, each own 26 per cent of voting shares and are presumably allied to Salomon, giving him control. While Ocean and Hansa shares are listed in London, they are based in Bermuda.
Any or all of the above may be red flags for many investors, but there is also a case for buying into businesses run by someone who has committed his or her own money.
Ocean broadly invests in other portfolios, hedge funds, direct global equities and private assets: effectively, a fund of funds. It currently emphasises artificial intelligence and the United States. Ocean’s investments have grown by 6.9 per cent over the past five years, compared with 12.2 per cent for the Association of Investment Companies’ flexible investment sector and 37 per cent for Hansa. Over 29 per cent of Hansa’s portfolio is in Ocean shares, otherwise it too invests in funds. Ocean pays a 5.68 per cent dividend and Hansa 1.52 per cent.
The big question is what Salomon intends to do with the money left over from the Wilson sale proceeds. We may learn more on Friday with Ocean’s third-quarter bulletin.
Advice Hold
Why More details needed about next steps
