City analyst: Premier job losses will improve profitability

20 November, 2012

A leading City analyst has welcomed the move by Premier Foods to cut 900 jobs and close two bakeries, describing it as a decisive move to improve long-term profitability”.

 

Martin Deboo, analyst at Investec, said the decision, which will cost the firm £28m in cash, would help with further rationalisation and could eventually lead to an eventual, profitable exit from the bread business by the firm.

The bread division of Premier Foods, which includes a milling operation and the Hovis brand and employs some 10,000 people, is reportedly up for sale as the under-fire company looks to pay down its debt mountain.

Earlier today, Premier announced the job losses and bakery closures along with plans to cut 130 distribution routes as a result of its loss of a £75m bread contract with The Co-operative. The group is to close its site in Birmingham, with the loss of 511 jobs and a bakery in Greenford, west London.

Deboo said: Premier has announced concrete plans to rationalise its bread business. While the event is less than a total surprise, given recent announcements, the substance is new news.

The marginal economics look attractive and sensible to us. The Co-op contract was intensive to serve, representing close to half of direct-to-store drops in bread. Relative to its c.15% contribution to sales, Premier is reducing headcount by c.18% and delivery routes by c.30%.”

Investec has a buy recommendation on Premier shares and a target price prediction of 125p.

 





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