Monday 23 July 2018

Aryzta needs to 'rebuild credibility' after Picard deal

Aryzta chief Owen Killian
Aryzta chief Owen Killian
Gavin McLoughlin

Gavin McLoughlin

Aryzta chief Owen Killian and his management at the €4.5bn-valued food group need to rebuild their "credibility" with investors, according to global bank Societe Generale.

Analysts at the bank have suggested that the Cuisine de France owner could take a number of measures to "accelerate the rebuilding of management's credibility with investors" in a hard-hitting note that downgraded the Cuisine de France owner's stock.

Aryzta's share price is down almost 40pc in the past year, with the company facing criticism over a proposed €446m acquisition of a 49pc stake in French retailer Picard.

The analysts suggested Aryzta could walk away from that transaction and instead pay down debt.

"While France's Picard may be a high-quality retail business, acquiring a minority equity stake in an adjacent business where long-term synergy prospects appear limited seems the wrong priority for use of cash," the analysts said.

An Aryzta spokesman told the Sunday Independent earlier this year that Picard "is a food business, which is adjacent and has complementary aspects to our French business".

"We believe at some point in the future it will consolidate the French business. We believe it does make sense - it's a repositioning of the investment in Origin into a related sector," the spokesman said.

The analysts also suggested the company could use money obtained from a share placing in its part-owned Origin Enterprises, as well as selling the rest of its stake, to pay off debt.

"Using the Origin cash from the March 2015 share placement, together with the potential €300m from selling its remaining stake in Origin to reduce debt of the core business, would significantly reduce the potential of a debt covenant breach," they said.

"It would also signal renewed management commitment and confidence in the core frozen bakery business."

However, the Sunday Independent understands that the Picard deal, which is awaiting regulatory approval, does not contain a break clause and is expected to complete in due course.

The Societe Generale analysts also suggested that Aryzta could "improve management visibility and accountability" by hosting investor and analyst Q&A conference calls at first quarter and third quarter updates.

Sunday Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business