RBC hails 'impressive' growth at Premier Foods, ups target price

15th Nov 2024 09:05

(Sharecast News) - The rally in Premier Foods' share price has further to run, according to RBC Capital Markets, which reiterated an 'outperform' rating on the stock on Friday, as it hiked its target price following the manufacturer's interim results this week.

RBC said it had previously applied a higher cost of equity (8.0%) for Premier Foods than other foods companies (7.5%) due to concerns about the company's pension liabilities and its historic performance.

However, Premier's "predictable, measured performance" has prompted the broker to move its calculations back in line with peers, leading to a 10% increase in the price target to 220p.

The company delivered "impressive" double-digit volume growth in the first half, partly offset by the negative impact of pricing actions, RBC said. But the broker predicted that, while volume growth will moderate in the second half, there should be a easing or even reversal in negative pricing towards the end of the year.

"When Premier announced its intention to stimulate volume growth in 2024/25 by promoting heavily, even at the expense of price deflation, we were intrigued," RBC said. The broker previously had concerns that the company's actions would prompt a reaction from competitors, depleting value across its product categories.

"In the event, our concerns were unfounded. It seems that the main competitors - predominantly private label in many of Premier's categories - were already frantically competing with discounters and were happy to accommodate a more competitive branded offering," RBC said. "The result has been impressive."

The stock was down nearly 2% at 185.4p by 1001 GMT, having jumped by nearly 40% over the year to date.