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McCormick & Co. (MKC)

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Thursday newspaper share tips: Premier Foods, Next

07 Apr 16

LONDON (ShareCast) - (ShareCast News) - Mc.Cormick's swoop for Premier Foods follows the time-honoured tradition by which a company that has successfully restructured is picked up at the bottom, depriving long-suffering shareholders of a reward for their patience, The Times's Tempus said.
The food manufacturer narrowly survived a near-death experience in the aftermath of the financial crisis, after being saddled with debt that peaked at approximately 2bn - with a huge pension deficit to boot.

US rival McCormick has already been forced to up its bid twice, to 65p, and is thought to be considering a take-out offer at 70p or more.

In the meantime, Premier Foods has managed to enlist the help of Japanese noodle-maker Nissin. The company has taken a 20.0% stake in the UK outfit, with the latter now better able to counter McCormick's claim that it needs the help of a big partner to keep growing while tackling its still high debt and pensions deficit.

At present, Premier obtains just 4.0% of its revenues from overseas and the company claims the tie-up with Nissan will allow it to double its rate of sales growth from 2.0% to 4.0%.

It's a speculative call - the share price will drop if a higher bid doesn't come through - but "the odds of some kind of agreed deal being struck with McCormick would seem to have shortened considerably."

So 'buy', Tempus said.

Everything that goes up may eventually come down, but the opposite need not necessarily hold true, at least in the case of Next, The Daily Telegraph's Questor said.

It is a very successful retailer, having managed to grow sales by 3.0% to 4.18bn in the financial year ended in January, while pre-tax profits rose by 7.0% to 836m, the tipster said.

Nonetheless, there were "worrying" signs that the average UK shopper was beginning to tire after a six-year debt-fuelled binge.

The company also lost 190,000 credit customers over the last two years, to reach 2.6m, and the rate of decline appeared to be accelerating.

A worsening economy could add to concerns surrounding those same credit customers, Questor added, with the company already allowing them to pay back less of their credit at the end of each month.

Then there is the company's level of debt to consider.

At 13 times forecast earning the share price does not accurately reflect the risk from its credit exposure nor of a possible slowdown in the directory business.

Despite the 25% drop in their price year-to-date, the shares are not yet a bargain, Questor said.

Note 1: Prices and trades are provided by Digital Look Corporate Solutions and are end of day values only.


Market Data

Currency US Dollars
52 Week High $173.52
52 Week Low $121.78
Shares Issued 122.46m
Market Cap $20,958m


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