The Investment Column: Lowly rated Premier Foods is worth a place at the table

CRH; NeutraHealth
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The Independent Online

Our view: Buy

Share price: 304p (-2p)

There will be no more acquisitions from Premier Foods for the foreseeable future. That is probably wise. The maker of Loyd Grossman sauces and Branston Pickle already has more than enough on its plate to digest.

Back in August, it bought Campbell's UK and Irish businesses for £468m. Then, in December, it agreed the £1.2bn takeover of the Hovis bread maker RHM, a deal that will be completed later this month. Recent dealing-room speculation has suggested Premier might be tempted to bid for Weetabix, the cereal brand owned by private equity. But those betting on such an outcome will be disappointed.

Robert Schofield, Premier's chief executive, yesterday ruled out all acquisitions, even small bolt-on deals, for at least the next 18 months. Top of his agenda is bedding down the Campbell and RHM purchases. Mr Schofield said the integration of Campbell, home to the iconic soup brand and Oxo stock cubes, is proceeding to plan.

From marriage with RHM, he hopes to squeeze cost savings of around £85m by 2010 - £50m from the administrative structure, £10m from corporate overheads and £25m in supply chain savings. Importantly, the deal is earnings-enhancing from year one.

Premier also unveiled a solid set of full year results yesterday. Pre-tax profit for 2006 rose to £56m from £51m in the previous year while sales grew 22 per cent to £959m. This performance came despite headwinds, chief among them rising raw material and energy costs. In 2006, the group also took a £4m hit from the loss of a contract to produce hot chocolate under licence for Cadbury Schweppes and saw profits at its convenience-food division slump 17 per cent.

Nevertheless, Premier said it is on course to meet City targets in 2007. Given its shares have one of the lowest ratings in the sector and the highest dividend yield, they are worth tucking away.


Our view: Hold

Share price: €31.68 (+0.78)

As of yesterday, CRH, the building materials group, is Ireland's second biggest listed company. For a large cap, it has been a tremendous performer. Over the past four years, CRH has seen its shares soar almost threefold and now boasts a market capitalisation of €17bn (£11.56bn). Across the Irish Sea, only Allied Irish Bank is bigger.

CRH's expansion has come about thanks to a mixture of organic growth and acquisitions. Half its operations can be found across the Atlantic with the bulk of the rest in Europe. However, the group is taking its first steps into high-growth emerging markets. Last year, it made its first acquisition in China and readers can expect more such deals in the developing world over the coming years.

That is not to say there is no more scope for growth in the US and Europe. Despite recent worries about its housing market, on a long-term view America remains a very exciting prospect for a building materials company because of its demographics.

Annual results from CRH yesterday made great reading for investors, particularly on the dividend front. The group raised its payout by a third to 52 cents a share. Although yielding just 2 per cent, CRH has promised to continue to increase its dividend substantially in the coming years.

At the pre-tax profit line, the building materials group recorded a 25 per cent rise to €1.6bn and beat analysts' expectations. It achieved this despite higher input costs and the malaise in the US residential construction arena.

Last year, the Irish group spent a record €2.1bn on bolt-on acquisitions and is likely to top this figure in 2007. Those expecting mega-acquisitions from CRH will be disappointed. However, this makes the company a more stable investment.

Despite the gains its shares have made, now is no time to be taking profits.


Our view: Worth a punt

Share price: 10.37p (+0.37p)

Us time-poor souls in the Western world are eating ever greater amounts of processed foods such as ready meals. Because in most cases eating a plastic carrier bag would give you more vitamins and minerals, people are opting for food supplements to make up for the deficiency.

It is from this fast-growing food supplements market that NeutraHealth is looking to make money. And, judging by yesterday's full year results from the AIM-listed group, it is already doing rather well. NeutraHealth unveiled a 250 per cent rise in pre-tax profits to £1.4m. For the current year, it expects an improvement on this figure as recent acquisitions are bedded down and new products go on sale on the high street.

At present, its products can only be found in health-food stores. However, it hopes that soon they will also be stocked by the likes of Sainsbury's and Boots.

There can be no doubt that the group is addressing a huge market. In the UK last year, people spent £450m on vitamins and other food supplements. Globally, analysts estimate the industry to have grown by 40 per cent in the past two years and to be worth around £18bn.