Premier Foods plc (LON:PFD) has renewed a licensing deal with Cadbury’s parent Mondelez International until 2022, sending its shares higher as it soothed worries that the partnership might come to an end.
Shares jumped 2.91% to 44.25p in morning trading.
The existing licence was due to expire in June and analysts had warned that Premier Food faced an “unmitigated disaster” if it failed to extend the deal after the group issued a profit warning in January.
“The loss of the Cadbury licence wouldn’t just be the icing on the cake after an extremely poor year, it would be an unmitigated disaster,” Clive Black at Shore Capital had said.
“The company has faced a litany of problems and it seems at the moment, if it can go wrong, it will go wrong for Premier,” he added.
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In a statement today, Premier announced it had signed a Heads of Terms with Mondelez to renew its long-standing licence to produce and market Cadbury branded cake and ambient dessert products. There will be an option to extend the licence to 2025, subject to meeting certain performance criteria.
“This will give us a great platform to invest in developing the Cadbury cake brand in the UK and around the world and represents a major boost to our fast growing International business,” said chief executive, Gavin Darby.
Cadbury cakes to enter new markets...
Premier said the partnership is expected to unlock new growth opportunities in markets beyond the core licenced areas of the UK, Ireland, Australasia and United Arab Emirates, bringing the total number of licenced countries to 46.
New potential markets include South Africa, Canada, Japan, China, India, Asia Pacific, Caribbean and more countries in the Middle East.
The company said it was developing plans to launch Cadbury cake in two new "significant markets" in fiscal year 2017/18.
The partnership will potentially allow Premier to use the full range of Cadbury brands, including Flake, Crunchie, Caramel and Marvellous Creations, as well as the Oreo brand.
Deal removes uncertainty, says Shore Capital...
"The new agreement is clearly welcome to Premier Foods’ shareholders as it removes a degree of uncertainty over an important component of the group’s branded product portfolio; one where speculation as to the future has risen, it should be said, in recent times," said ShoreCap's Clive Black.
However, the broker reiterated a 'sell' rating, saying Premier is a business that remains "burdened by its balance sheet".
In its third quarter trading update in January, Premier said net debt at 1 April 2017 was expected to be about £525mln. It also warned that trading profit expectations for the full year were 10% lower than previously anticipated.
"Accordingly, whilst we welcome today’s news, until we have a better feel for the robustness and visibility of Premier Foods’ earnings, in a market where cost-recovery may not be a walk in the park, whilst inflation can bring with it volume reactions, we reiterate our cautious stance on the group’s shares; shares that may respond warmly today," Black said.
-- Adds share price reaction, broker comments --