How are these two food producers performing with resumption of operations: Bakkavor Group & Premier Foods?

The British food growers are set to trial a revolutionary robot-based system this season to tackle labour shortages, as only around 30 per cent of the migrant workers are expected to come to the United Kingdom, due to COVID-19 restrictions. Adjacently, the US Department of Agriculture is conducting a national study on the pandemic effects on local food systems by collaborating with several universities in research agreement.

Meanwhile, the FTSE 100 gained 0.47 per cent and closed at 6,105.18 at the end of the choppy session on Friday (as on 12^th June 2020). The surge was witnessed after the biggest one-day suffering since March. Notwithstanding, investors remained cautious about the likelihood of a second wave of COVID-19 infection as the several US states reported a resurgence in new cases, which could hinder the pace of reopening economies.

Besides the above-stated factors, market sentiments were also influenced by the following aspects:

• On the economic front, the British economy contracted by a record pace in April due to coronavirus-imposed restrictions.
• On the corporate front, the travel companies - EasyJet, Ryanair and British Airways launched legal actions against UK government’s quarantine rules and enforced the government to re-adopt its former quarantine policy introduced on 10^th March 2020, wherein quarantine was restricted to travellers from “high risk” nations.

Given the prevailing market conditions, we have chosen to review two food producers to see how they have been navigating through the economic turbulence. The two food producers are Bakkavor Group PLC (LON:BAKK) and Premier Foods PLC (LON:PFD). The stock of BAKK and PFD closed the week (as on 12^th June 2020) on a bright note and gained 3.05 per cent and 1.52 per cent, respectively, against the previous day closing. The Bakkavor Group also announced its trading statement on Friday. Hence, it would be interesting to deep dive through the financial and operational position of both the Companies to understand the trading conditions better.

Bakkavor Group PLC (LON:BAKK) – Sees Signs of Recovery Amid Resumption of Operations

Bakkavor Group PLC is a FTSE 250 listed Food-Producing Company, which has been listed on the London Stock Exchange since 3^rd November 2017. The Company is primarily engaged in serving freshly prepared food in the United States, United Kingdom and China. It develops and provides food for a variety of budgets and occasions. Majorly, it delivers four fresh prepared food product categories – Pizza & Bread, Desserts, Meals and Salads. Besides its operation in the United Kingdom, the Company operates with the foodservice market in China and fresh prepared foods market in the United States.

(Source: Presentation, Company Website)

Synopsis of Recent Regulatory Updates

29^th May 2020: On this day, the Company unveiled several measures adopted in response to COVID-19. It was comprised of strategies in place to ensure safety, standardization, hygiene and continuity of the business, in accord with the government guidance.

17^th March 2020: The Company announced a refinancing through revolving credit facilities and new term loan amounting GBP 455 million. The arrangement was secured through 10 banks, which was coordinated by Rabobank and HSBC UK Bank as Joint Bookrunners.

Trading Statement (as on 12^th June 2020) - Highlighted Significant Operational Changes Across Business

In the last update of 2^nd April 2020, the Company outlined the impact of COVID-19 with a steep reduction in sales volume in the UK and US from the last week of March and until April. It followed by the business disruption in China towards the end of January.

Since the last update, situations have stabilized in all three regions, and major highlights are given below:

• Group like-for-like revenue plunged around 5 per cent for or the five months to the end of May (compared to the corresponding period the last year).
• The UK market reported a decline of 13 per cent in May and 19 per cent in April, in terms of like-for-like revenues and thus, still appeared volatile.
• While In the US, the Company has been able to mitigate the financial impact by adapting to the demand downturn.
• In China, consumer confidence is gradually falling in place as restrictions on movement are lifted.

Share Price Performance Analysis

(Source: EODHD/Others, Thomson Reuters) -1-Year Chart as of June 12th, 2020, after the market close

On 12^th June 2020, BAKK’s shares closed trading at GBX 81.20, up by 3.05 per cent against the previous day closing. Stock's 52 weeks High is GBX 160.60 & Low is GBX 56.73. Total outstanding market capitalization stood at around GBP 470.49 million.

Business Outlook

The Bakkavor Group has taken several decisive and prompt actions ever since the coronavirus outbreak came into the picture, to preserve cash and lower its cost base. In addition, the Company has proactively adopted the capacity with an anticipated demand slump. Consequently, the Company has substantial headroom of GBP 562.5 million in facilities, to operate the business conveniently. In recent weeks, the Company has experienced a modest return in volumes and hence, they are gradually reopening factories. The management looks confident for bright prospects in the long run with resilience and well-capitalized state of business model.

Premier Foods PLC (LON:PFD) – Decent Fundamental Growth Story with an increase in the debt reduction programme.

Premier Foods PLC is a Great British Food Company, which is involved in the manufacturing and distribution of own-label food and beverage products as well as branded food products. The Company’s operation is differentiated into three segments, include Grocery, Sweet Treats and International. It has been listed on the London Stock Exchange since 23^rd July 2004, and presently, a constituent of FTSE All-Share index.

(Source: Annual Report, Company Website)

Preliminary Results Announcement Timing

Pursuant to the guidance by the FRC (Financial Reporting Council) and FCA (Financial Conduct Authority), the Company postponed the release of its full-year preliminary results for the 52 weeks ended 28^th March 2020 from 14^th May 2020 to the end of June 2020.

Recent Significant Developments of 2020

26^th May 2020: The Company announced partial redemption (GBP 80 million of the GBP 210 million outstanding) of Senior Secured Floating Rate. Following the redemption, the Company is likely to save more than GBP 4 million annually in interest costs.

15^th May 2020: The Company bolstered its Audit, Remuneration and Nomination Committees with immediate appointment of Helen Jones and Tim Elliott as independent non-executive directors.

Trading Update on Fourth Quarter & Full-Year 2020

As on 20^th April 2020, the Company released its latest operational update along with the impact of COVID-19 outbreak on the business. Following were the key highlights of the update:

• Landmark pensions agreement between pension Trustees and the Company: The new pensions agreement will provide the platform for sustainable value creation for all stakeholders.
• Net present value of pensions deficit contributions reduced by 45 per cent to GBP 175 to 185 million from GBP 300 to 320 million
• Trading profit is expected to be at the higher range of market expectations.
• At March end, Net debt/EBITDA was conveniently lower than 3.0x, beating the previous guidance and target.

Regarding the COVID-19, the Company experienced an exceptional peak in demand volumes during March. However, it has started falling from the short-term peak volume of March but still projected to remain higher than the average pattern of demand.

Cash and Liquidity

At year ended on 28^th March 2020, the Group expects to report cash generated from operating activities more than GBP 90 million. Moreover, the Company adopted a rational measure of drawing down GBP 85 million of its GBP 176.6 million of committed revolving credit facility.

The financial headline of half-year results can be seen in the image below:

(Source: Final Results, Company Website)

Share Price Performance Analysis

(Source: EODHD/Others, Thomson Reuters) -1-Year Chart as of June 12th, 2020, after the market close

On 12^th June 2020, PFD’s shares closed trading at GBX 53.50, up by 1.52 per cent against the previous day closing. Stock's 52 weeks High is GBX 55.50 & Low is GBX 17.86. Total outstanding market capitalization stood at around GBP 454.01 million.

Business Outlook

The Company is set to create value for all stakeholders with its ground-breaking agreement represented by the segregated merger of the Company's pensions schemes. Moreover, the partial redemption of notes, the Group is expected to save GBP 4 million annually in interest costs. The Company shall continue to pursue its branded growth model strategy and exploring new avenues to deliver value.

(Source: Company Website)