Is Premier Foods plc the next Unilever plc?

Could tiddler Premier Foods plc (LON: PFD) become the next Unilever plc (LON: ULVR) or are its problems too great for now?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Unilever (LSE: ULVR) is one of the London market’s most coveted stocks but does Premier Foods (LSE: PFD) have what it takes to replicate the company’s success and once again become appealing to investors? 

Undervalued? 

At the time of writing, shares in Unilever trade at a forward P/E of 19.4 while Premier Foods trades at only 5.6 times forward earnings. These metrics say a lot about the fortunes of these two companies. 

On one hand, you have an emerging markets star, owner of some of the most valuable consumer brands in the world, with sales growing at a steady 4% or more per annum. On the other hand, you have Premier Foods, a company that has struggled to get sales off the ground in recent years, is grappling with a mountain of debt and has only reported a profit once in the past five years. 

Should you invest £1,000 in Barclays right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays made the list?

See the 6 stocks

Premier’s problems stem from the company’s pre-crisis debt-funded acquisition binge. At its peak, Premier’s debt stood at £1.8bn, six times earnings before interest, tax, depreciation and amortisation — a ratio of more than two times EBITDA is usually considered high. 

Over the past few years, Premier has been trying to reduce debt but nearly £200m of derivative costs, pension problems, and flagging sales have hampered turnaround efforts. Sales have contracted around 19% per annum since 2011, compared to Unilever’s average revenue growth rate of 3.8% per annum since 2012. Unilever’s net debt-to-EBITDA is less than one today while Premier’s is still an elevated 3.5 times EBITDA. 

Haunting debt 

With such a hefty pile of debt still haunting the company, it’s clear that Premier will struggle to grow for some time to come. 

At the end of the first half, the company’s net debt stood at £556m, £29m lower year-on-year. At this rate, it will take more than a decade for Premier to get its debt back under control and that’s without accounting for pension issues. The company’s pension deficit amounted to £229m at the end of the first half. 

Still, for the company’s fiscal first half, sales rose by 2% reflecting the consolidation of acquisition Knighton Foods. 

Foolish summary 

Overall, City analysts are expecting revenue growth of around 5% for the year ending 31 March 2017 and a pre-tax profit of £68m has been pencilled-in, the company’s first pre-tax profit for two years (and the second in six). A pre-tax profit of £72m is expected for the year after and if the company meets this lofty target, then there’s hope for the group. 

Nonetheless, considering the company’s past troubles, debt and pension issues, I’m not convinced that Premier is even a speculative bet. The shares may be trading at a highly attractive valuation but it looks as if they’re cheap for a reason and that debt pile means there’s no hope of a dividend for many years. 

All in all, Premier isn’t the next Unilever. Unilever is still the best investment for long-term defensive investors. 

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Mature black couple enjoying shopping together in UK high street
Investing Articles

As WH Smith shares rise despite its H1 loss, I still think they’re good value

Shares in retail companies have been having a tough time recently, but does the latest FTSE 250 stock to report…

Read more »

Investing Articles

The top 3 mistakes to avoid if the stock market crashes

When the stock market dips, it can make even the hardiest of investors quiver at the knees. But no matter…

Read more »

Investing Articles

With the Rolls-Royce share price still down 10%, can I resist buying?

The effect of US tariffs on the Rolls-Royce share price hasn't been as bad as we'd first feared. Is there…

Read more »

Investing Articles

I’ve been boosting my dividend income with these UK shares

Stephen Wright has been taking advantage of a volatile stock market to buy shares in two UK companies that have…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Down 40%, could this be one of the FTSE 250’s best cheap recovery shares?

Searching for the best FTSE 250 shares to buy following recent stock market volatility? Here's a dirt-cheap UK stock on…

Read more »

Hand is turning a dice and changes the direction of an arrow symbolizing that the value of an ETF (Exchange Traded Fund) is going up (or vice versa)
Investing Articles

This ETF has soared 40% in 2025! Is it a safe haven from stock market sell-offs?

An escalating US-China trade war means extreme stock market volatility may be here to stay. This ETF could be a…

Read more »

Investing Articles

Is it too late to buy this surging FTSE 100 stock?

Andrew Mackie believes that precious metals miners, long shunned by investors, are just beginning to emerge from a decade-long bear…

Read more »

Investing Articles

Down 50%, this penny stock could reward patient investors

A decision not to put the business up for sale, coupled with a poor harvest, has seen this penny stock…

Read more »