Two Companies Trying to Get Back to Normal

The Week: Morningstar columnist Rodney Hobson notes that people will always need to eat and have somewhere to live, which works in favour of Premier Foods and Taylor Wimpey

Rodney Hobson 24 April, 2020 | 9:11AM
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Continuing the theme of last week’s column I suggest investors look for companies where life will be pretty much the same as before – provided, of course, they were actually doing well before the shutdown. Not everything in the past is worth repeating.

In Premier Food’s (PFD) favour is the fact that we have to eat and we are even more wedded to supermarkets than ever. Cooking at home will remain a reality even after restrictions are relaxed, as cafes and restaurants are forced to space tables further apart and restrict numbers of diners.

Premier’s latest trading update revealed that trading profit for the year to March 28 was at the top end of market expectations as the positive momentum seen in previous quarters continued – and will continue for the foreseeable future.

Investors should bear in mind that the latest quarter was distorted by a surge in March, linked directly to the covid-19 outbreak, that saw production and distribution running at maximum capacity. The following months will not be quite so strong.

Another positive factor is that Premier is reorganising its separate pension schemes to reduce future contributions by about 45%.

My big, long-standing worry is that Premier and other food suppliers are continually being squeezed by their supermarket customers, who find themselves in a highly competitive marketplace. The shares have not topped the giddy heights of 60p in the past five years and in my view are unlikely to do so any time soon, though they have at least fully recovered the sharp fall earlier this year in the general market carnage.

Investors must form their own judgment. If you think the tide really is turning for Premier Foods, by all means take a look. I won’t be joining you at the feast.

Can Housebuilders Bounce Back?

We not only need to eat, we need somewhere to live and I believe that housebuilders will bounce back better than most. Shares in the sector had risen too far during the good times but now they have fallen back too far as investors worry that the housing chain is suspended indefinitely.

Taylor Wimpey (TW.), in which I have a stake, has made the best of a bad job as its AGM trading update showed. Although it closed sites and sales centres at the end of March it has been talking to prospective buyers online and claims that it is seeing continued demand for its homes. Cancellations are running at only 1% of the order book.

Its strong cash pile will see it through and it hopes to start reopening sites at the beginning of May. While that could yet be thwarted by a government extension of the lockdown, it is encouraging to know there is a plan in place to be put into operation as soon as possible. There could well be a backlog of potential buyers raring to go, though they will have to be patient for a little longer as sales centres and show homes will remain closed.

Taylor Wimpey shares leaped 11% on the update but at 150p were still well below February’s 236p peak. I think they should be able to claw back more of the deficit during the summer.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.