RBC Capital downgrades Premier Foods to ‘sector perform’
RBC Capital Markets downgraded Premier Foods on Tuesday to ‘sector perform’ from ‘outperform’ but kept the price target at 220p.
"We were a bit torn when making this decision," said RBC.
"Premier Foods has done an outstanding job resolving a number of existential problems and has evolved a reliable business model. This has taken a while, but we feel that the share price now reflects these virtues, and so downgrade our rating to sector perform."
The bank said it has updated its forecasts following the full-year results, cutting its 2026 adjusted diluted earnings per share estimate to 13.90p from 14.20p to reflect an increase in guided finance costs in 2026 as a result of a low coupon bond being refinanced.
RBC said it was "enthused" by the news that Premier is to increase its capital expenditure, from £41m in 2025 to a guided £50m in 2025 and - it expects - thereafter.
"When we visited a Mr Kipling plant last year, we were struck by just how much opportunity there is to deploy technology further...and this, we understand, is one of Premier's more technologically sophisticated plants," it said.
"We believe that this will help underpin margins in future. Even with this elevated capital expenditure, we forecast net debt to decline to zero within two years, assuming no acquisitions. This is not the way management sees it playing out, with the prospect of something larger following the successful acquisitions of Spice Taylor and FUEL 10K. We're ambivalent about this.
"Yes, we think that they have earned the right to give it a go, but in our view there's a lot to be said for a reliable, if lower growth, business model. With the share price closing in on our unchanged £2.20 adjusted present value derived price target, we downgrade our rating."
At 0925 BST, the shares were down 2% at 208.28p.