One to watch: Premier Foods

PREMIER Foods is one of the UK's largest food manufacturers. The company has three segments. Its grocery division comprises shelf stable or ambient grocery products such as Mr Kipling, Batchelors Soup and Branston Pickle.

The Hovis division presents the eponymous brand, whilst the chilled – and Ireland segment – comprises the chilled and frozen meat product operations in Ireland. This division consists of its retail branded chilled ready meal and cake businesses, where the main brands are Quorn and Cauldron.

Premier has been an object lesson in shareholder value destruction over the past few years. The problem can largely be traced back to the acquisitions, in fairly short order, of Rank Hovis McDougall and Campbell Soup.

Premier Foods took on a very substantial level of debt to fund these purchases and the subsequent deteriorating economic environment made the cost of servicing this loan more challenging. Robert Schofield, the architect of the company's policy, is known for his sunny optimism, which seems to have been somewhat misplaced.

Investors remain sceptical about Premier, having been badly scarred by the events of the past couple of years. However, there is no denying the quality of the company's brand portfolio, although some might argue the range is excessive. The company is now proposing to focus on its top 12 brands and might sell some of the less profitable and less revenue relevant. However, this does not appear to be on the agenda. A rights issue last year largely addressed Premier's balance sheet problems and the shares could be an interesting recovery play.

The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.