Investment Column: Premier Foods shares look cheap, so tuck in

Mondi; InterContinental Hotels


Our view: Buy

Share price: 33.2p (+0.9p)

While the City's main anxiety with Premier Foods in the first part of 2009 was its debt pile, the maker of Hovis bread continued to cook up tasty sales growth across many of its brands.

However, thanks in part to a £404m rights issue in May, the borrowings have been slimmed down to £1.4bn and the UK's largest food producer savoured a 6.5 per cent rise in sales of branded products over the 12 months to 31 December, to £1.68bn.

It also defied expectations that shoppers would switch from brand names to cheaper own-label ranges during the downturn. Among the best-performing brands, which account for 63 per cent of Premier's sales, were its Sharwood's and Loyd Grossman cooking sauces. Hovis also continued to grow, with sales up 15 per cent over the year following a brand overhaul and blockbuster television campaign.

These gains, together with cost savings, helped Premier to increase its annual tradin profit by 4.5 per cent to £323m. Pre-tax profits (including the impact of all that debt) also perked up to £47m, compared to the dismal loss of £405m a year ago when hefty restructuring charges took their toll. Looking forward, there is much to like about Premier, notably an undemanding 2010 price multiple of 5.6 times forecast earnings, which makes the stock look undervalued.

Premier also says it is confident of continuing to capture market share in key product categories and delivering sustained earnings growth and cash generation over the "medium term". There are some less savoury ingredients in the corporate recipe, however. Premier declined to offer any guidance yesterday on when it will resume dividend payments, which it suspended in November 2008. It also has a sizeable pensions deficit and its current servicing costs will increase by £10m in 2010.

Nevertheless, Premier is likely to benefit from a further up-tick in demand for brands as the worst of the recession recedes. It appears to have genuine momentum behind it, so buy.

Mondi

Our view: Buy

Share price: 346.3p (+5.4p)

The paper and packaging group Mondi has not had a great recession. The South African company temporarily closed some of its paper mills because of limited demand last year, while a graph of its share price closely resembles a downhill ski slope in the months before the equity markets' nadir this time last year.

Mondi issues a trading statement yesterday, in line with Johannesburg stock exchange rules, a week ahead of its full-year numbers, which said that its earnings-per-share were likely to have halved. Underlying operating profits in the latter half of 2009 beat those in the first half as the recession eased, but they were still below those of the comparable period in 2008.

Several one-off charges, including the costs of mothballing its machines, will hardly help the numbers, but things appear to be getting better.

The company's shares have actually put on more than 100 per cent in the past 12 months, making any brave investment a year ago look inspired. Moreover, analysts at Mondi's house broker UBS are upbeat, saying that the positive second-half performance augurs well for the future. They are attracted by Mondi's grade exposure, low cost position, restructuring actions and leverage from recent investments. They are are also encouraged by the recent momentum shown by the shares.

Trading on a forcast multiple of 8.78 times full-year earnings, there is certainly room for growth, while the 2.15 per cent dividend yield is a nice bonus to have. Despite the recent rise in the share price we feel that there is more in the tank, so buy.

InterContinental Hotels

Our view: Sell

Share price: 893p (-27p)

The world's hotel market has been battered by the worst downturn in its history and InterContinental signalled yesterday that the industry is not yet out of the woods, as it posted a 34 per cent fall in 2009 operating profits.

As with its rivals, the owner of the Holiday Inn chain has been hit by companies cutting back on business travel in the US and Europe. IHG's revenue-per-available-room (revpar) fell by 3.8 per cent globally last month, although this was better than the 10.9 per cent fall in the fourth quarter and the overall slump of 14.7 per cent in 2009.

Still, the world's largest hotels group continued to invest in its brands, notably Holiday Inn. It opened a record 439 hotels last year, with nearly 400 planned for 2010. It also maintained its final dividend at $29.20. IHG's shares trade on a 2010 price-to-earnings multiple of 21.2, cheaper than rivals such as Marriott but still pricey. Because of this and the likelihood it will be at least 2011 before the industry really gets going, we think its time to take profits. Sell.

PROMOTED VIDEO
Voices
Pupils educated at schools like Eton (pictured) are far more likely to succeed in politics and the judiciary, the report found
voices
Arts and Entertainment
Simon Cowell is less than impressed with the Strictly/X Factor scheduling clash
tvSimon Cowell blasts BBC for breaking 'gentlemen's agreement' in scheduling war
News
Orson Welles made Citizen Kane at 25, and battled with Hollywood film studios thereafter
people
News
Brad Pitt and Angelina Jolie reportedly married in secret on Saturday
peopleSpokesperson for couple confirms they tied the knot on Saturday after almost a decade together
Sport
footballAnd Liverpool are happy despite drawing European champions
News
i100
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
tv
News
i100
Arts and Entertainment
Diana from the Great British Bake Off 2014
tvProducers confirm contestant left because of illness
Arts and Entertainment
Lisa Kudrow, Courtney Cox and Jennifer Anniston reunite for a mini Friends sketch on Jimmy Kimmel Live
tv
Life and Style
fashion

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Client-Side web developer (JQuery, Javascript, UI, JMX, FIX)

Negotiable: Harrington Starr: Client-Side web developer (JQuery, Javascript, U...

Structured Finance

Highly Competitive Salary: Austen Lloyd: CITY - An excellent new instruction w...

SQL Server Developer

£500 per day: Harrington Starr: SQL Server Developer SQL, PHP, C#, Real Time,...

C#.NET Developer

£600 per day: Harrington Starr: C#.NET Developer C#, Win Forms, WPF, WCF, MVVM...

Day In a Page

Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone