Premier Foods Spread Betting
Premier Foods (PFD) is one of the largest food manufacturers in Britain. The Hovis-to-Bisto maker owns many famous names that have been bought by British consumers for generations, most notably brands like Hovis, Typhoo, Birds Custard, Branston Pickle, Bisto Gravy, and too many more to list. But things have not been easy in the last few years, and at some times it seems like Premier Foods has been struggling to exist.
Of course the food industry suffers when consumers have less to spend, and only staples are being bought. Unlike other industries, at least a certain minimum must be purchased, but given the impermanence of food, the amount of supply must be carefully metered to avoid too much spoilage.
Premier Foods has been trying to bring down its debt by selling off parts of its operation. The company has recently sold its sweet spreads and jellies operation to Hain Celestial for £200 million and is now following this up with a planned sale of its sweet pickles and table sauces operation to Japanese based Mizkan for £92.5 million. The global economic crisis occurred at the wrong time, making the grocery’s earlier aggressive takeover policy a liability and turning the company into a debt-laden behemoth. The analysts at BNP Paribas, the French bank, even gave a negative value to its shares in 2011, while admitting that this was really just an “academic concept”.
The company started in the mid-70s, when it was called Hillsdown, and it expanded by acquisition. It bought the food business of Beechams, Typhoo, and Cadbury’s. After it had acquired some parts of Nestles, it was listed on the Stock Exchange and bought parts of Ambrosia and Kraft Foods. It subsequently sold Typhoo, but bought Oxo, Fray Bentos, Batchelor’s, and the UK rights to Campbell soups which it had to describe as “formerly Campbell’s” as it did not buy the branding.
All these purchases meant that it was burdened with debt when tough economic times happened. It has been re-inventing itself, and divesting some of the businesses in an effort which seems to be having some effect.
The charts show how even a supposedly safer market sector such as food can have its ups-and-downs. Investors have seen the stock price slashed in recent years, and the negative valuation of BNP was based on standard accounting practices.
The share prices seem to be driven more by internally generated factors, rather than universal market criteria, and are therefore more difficult to anticipate, unless you have an inside line into when the announcements are going to be made. This makes trading on the stock price more problematic, but the safer option is probably to wait until after an announcement sets the price running on an up or down trend, and then to bet on the trend continuing. This follows the standard technical analysis idea that a trend will continue unless the price is acted upon by another force, a sort of variation on Newton’s laws of motion.
Provided Premier Foods avoids bankruptcy, then it should become more predictable and evenly priced in the future. The opportunities to exploit large price swings are there right now, but unless you are an experienced spread better you need to proceed with extreme caution and not overextend your account. Whenever you place a bet, you should know what the downside can be, and at what point you are going to close the bet and accept your losses, if it goes against you.
There is one distinction though, if you are in it for sh*ts & giggles and not chasing day trades you can use some skill to make some money (especially in the current market). A hobby trader won’t have the time to chase the entire market but if you select a handful of shares to watch and trade when you want or not at all you can do well. For example if you had bought Premier Foods a few weeks ago you could have doubled your money. – Andy
No offence Andy but you are delusional!!
Running a more concentrated portfolio (“a handful of shares”) would INCREASE the risk.
“Some skill to make money” – what “skill” are you talking about?
Would you put yourself though CFA levels 1-3?
Would you read the top 100 recommended books on investment management?
Would you do an MBA in your spare time?
No you wouldn’t – it’s a hobby after all. That all sounds like hard work.
You would probably take a punt on some random crap you read in a tipster column or on here.
Perhaps some AIM listed pump-and-dump boiler room stocks.
Or like your Premier Foods example you would just chase momentum.
Oh and by the way PFD was down 70% last year.
Since Jan 1 2011, it is down 35%.
There would have been an absolute handful of people who will have made money in PFD and 80% of them will have been people shorting the crap out of it for the long term.
Unless of course you believe you can bottom pick every spiking basket-case stock…
Do you even know WHY PFD is up 100%?
When would you cut your position?
What’s your price target? Based on what PE? DCF? EV/EBITDA?
What EPS growth are you anticipating over the next 12 months?
How risky is its balance sheet? Are they close to covenants?
When is their next major debt maturity? Can they refinance? How much more will it cost?
I really don’t mean to be rude because personally I LOVE all this crap.
But if you want to be a “hobby trader” you should really treat it like a hobby.
i.e. it will cost MONEY.
Don’t kid yourself that you are somehow saving for your retirement.
YOU WILL LOSE MONEY.
Spread Betting on Premier Foods
Premier Foods is a major food manufacturer in the UK, which is involved with very many markets and many household names. It has had some financial troubles, and should be traded cautiously. The current price for a rolling daily bet is 11.721 – 11.779. If you think that the current upward trend will continue, you might want to place a buy bet for £40 per point.
Your long or buy spread bet would go on at the higher of the two quoted prices, is 11.779. The price can easily change three points in a week, so say it went up to 14.632 – 14.690, at which point you decided to close your bet and collect your winnings. You can easily work out how much you won from the point gain and the stake.
Your bet started at 11.779, and when it closed the selling price was 14.632. That means you gained 14.632-11.779 points, which is 2.853 points. If you multiply that by the stake of £40 per point, you find you have won a total of £114.12.
If instead the price had gone against you, and gone down, then it would have reached a level at which you needed to close the bet and accept your loss. Say you did this when it went down to 10.234 – 10.292.
As before, your bet started at 11.779, and you closed the bet by selling at 10.234. The difference between these two prices is 1.545. Your stake was £40 per point, which means you lost 1.545 times £40, or £61.80.
The difference between the two prices, the buying and selling prices, is about 0.060 points on this rolling daily bet, and you may be charged interest each night that the bet is rolled over. As an alternative, you could take out a futures style bet which you can hold without any interest charges right up to the expiry date, months away. The current price for seven months away is 11.767 – 11.910, a spread of 0.143, so you have to make up more ground before the bet gets into profit. Even though it is a futures style bet, you are at liberty to close it any time you want to, and you don’t have to wait for the due date.
So assume that you take a long bet at £65 per point as you believe the price will rise over the next few months. If you are correct, perhaps you will cash it in when the price is quoted at 16.230 – 16.362. Your buy bet was placed at 11.910, and was closed at 16.230, which means you gained 4.32 points. Multiplying this by your stake, you have won £280.80.
The chief problem with a futures style bet is that you have a larger built in loss in the spread, if the price goes the wrong way. In other words you cannot let the price go much further down before you close for a loss. If it went down to say 11.239 – 11.363, and you closed to cut your loss, you would lose 11.910-11.239, which is 0.671. Multiplied by your stake, you have lost £43.61.
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