As the markets fall further on concerns about the future of Italy, and a number of corporate updates prove disappointing, investors have been looking for bright spots.
Perhaps surprisingly, one of them is the heavily indebted Premier Foods, the maker of Mr Kipling cakes and Hovis loaves. The company's shares have jumped nearly 5% - up 0.178p to 3.99p - on further consideration of Monday's news that it had won a three month breathing space from its lenders. A key covenant test has been delayed from the end of December to the end of March 2012, giving it time to sort out its finances by selling off some of its brands.
The current rise in its shares follows a buy note from analyst Martin Deboo at Investec. He said:
We think the market has under-appreciated the significance of the covenant deferral and move to buyers [from hold], reflecting both this and some faith in the value of a set of entirely new brooms at the top. We think there is a plausible equity value of 20p in six months with better than the 20% probability of realisation that the share price is currently discounting.
He believed a covenant breach in December would have been a virtual certainty, but now Premier had a plausible 200 day plan to revive its shares:
We now know the banks don't seem to want Premier to fail and we suspect that, ultimately, neither do the retailers.
New chief executive [Michael] Clarke has a toehold on the sheer rock face he now has to climb. The question of whether he can reinvigorate Premier's brands can come later. The realistic next staging post is a debt refinancing, asset disposals and stabilised trading. We come on board at least as far as that.
