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Investing.com -- Kepler Cheuvreux has initiated coverage of Premier Foods (LON:PFD) with a Buy rating and a price target of 220p, citing a compelling mid-term outlook driven by brand momentum, international expansion, and bolt-on acquisitions.
The broker’s price objective implies around 17% upside from the current share price.
Kepler analysts described Premier as “a cash-generative growth story within the defensive consumer staples sector,” noting that the group has emerged from its turnaround with net debt at record lows, a pension surplus, rising free cash flow, and resumed dividends.
Despite the stock’s solid performance, they believe the market is still undervaluing its margin and growth potential.
Premier, owner of household names such as Mr Kipling, Bisto and Oxo, has gained market share even in challenging conditions through new product development and marketing investment.
“The company’s Branded Growth Model and five strategic pillars provide a clear roadmap, allowing it to deliver growth in the U.K. core market, expand into new categories, boost international sales, and act on inorganic growth opportunities,” Kepler’s note states.
Recent deals include The Spice Tailor, FUEL10K and Merchant Gourmet, all financed through internal cash generation.
The broker forecasts adjusted EBIT to reach £216 million in fiscal 2028 (FY28), supported by rising sales and operational efficiencies, while free cash flow is projected to grow to £173 million.
By FY27, Premier is expected to move into a net cash position of £171 million.
Kepler said the shares would trade at about 14x forward earnings and 10 times EV/EBIT in FY26/27 at its target price, still attractive for a branded consumer foods group.
Risks flagged by the analysts include commodity and energy cost volatility, foreign exchange headwinds, retailer pricing pressure and the threat of market share gains by private-label products. They also cited the possibility of integration setbacks from recent acquisitions.
However, they argue that Premier’s scale, strong retail partnerships and balanced portfolio of both meal staples and treats help mitigate these challenges.
“Despite the company’s deleveraging, resolved pension scheme issues and strong operational performance, the stock remains undervalued, in our view, failing to capture mid-term growth and margin increase potential,” Kepler said.