Investment Column: Premier Foods takes a risk with float but could provide a defensive play

Niche markets pay dividends for Future Networks
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The Independent Online

Trying to float a food company at the moment seems a foolhardy exercise given the range of distress calls that have been coming out of the sector of late.

Trying to float a food company at the moment seems a foolhardy exercise given the range of distress calls that have been coming out of the sector of late.

Northern Foods has acquired a reputation for issuing multiple profits warnings while its rival Geest joined the club as recently as last week. Uniq, the food rump of the old Unigate group, has steadied but only after radical surgery involving 700 job cuts and factory closures.

Not surprisingly, investors have been left feeling battered and bruised as the businesses battle intense price competition brought on by avaricious retailers who are squeezing producers' margins just as many raw material costs have been rising.

So yesterday's news from Hicks, Muse, Tate & Furst, the Texan private equity fund, that it is pressing ahead with the flotation of Premier Foods, maker of Branston Pickle and Ambrosia rice pudding, seems likely to test the patience of investors to the limit.

All floats are surrounded by optimistic hype to help persuade hard-pressed investors to part with their cash. Will Premier and its team of advisers succeed with their story?

The answer is probably yes. The company does not seem to have been overly greedy on price. A price range of 230p-260p, released yesterday, gives a price/earnings ratio of 9.25-10.5 times this year's earnings. This compares with Northern Foods at 11 times. Premier will also yield just shy of 6 per cent, so on these benchmarks Premier is a bargain.

The suspicion is it may have been priced to go, but that would be unfair. The company has achieved steady gains in sales - £93.8m in the three months to April 3 compared with £89m in the same period last year - and operating profits. The big difference with Premier is that it is a branded food group whereas the likes of Northern are ostensibly own-label producers for the supermarkets. It owns an impressive list of household names including Typhoo Tea, Crosse & Blackwell and the Loyd Grossman sauces that should provide steady progress for the company. A decent management team should provide a good defensive play. Buy

Niche markets pay dividends for Future Networks

Future Network's portfolio of 100 magazines taps into niche interests.

Although the company is best known for gaming and computing titles, it also has a huge range of publications that cater to hobbies: from guitar playing to mountain-biking to cross-stitching.

Yesterday the company announced that it had been licensed by Microsoft to go on producing the official magazine for the Xbox games machines until an amazing 2011.

The company has recovered from the dot.com fever days which saw it overstretch itself, resulting in a sell-off of assets in 2001, followed by a rights issue.

The company has shown double-digit growth more recently and earlier this year paid its first-ever dividend.

Future Network publishes magazines in the UK, the US, France and Italy and it licenses out its titles in other markets.

The news from a trading update, also out yesterday, covering the five months to the end of May, was that the results in the UK have improved in the last two months of that period.

In the US, sales are roaring ahead - up 35 per cent on a constant currency basis. France and Germany are also profitable this year, unlike 2003.

With the company sitting on a £13m cash pile, Future Network shares, at 64.25p, trading on a modest forward multiple of 11, are a buy.

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