Around €803m wiped off Aryzta market cap as analysts downgrade stock

A number of leading food analysts have downgraded Swiss-Irish food group Aryzta as shares in the company fell for a second day in a row, wiping almost 28 per cent off their value and around €803 million off the company's market capitalisation.

The steep share price decline came after the company, with a dual listing in Ireland and Switzerland, issued a profit warning on the back of ongoing weakness in its European and US markets.

Aryzta, whose brands include Otis Spunkmeyer and Cuisine de France, now appears to be under increased pressure to quicken the pace of disposals of non-core businesses.

Speaking to The Irish Times on Thursday, Investec equity analyst Ian Hunter suggested that either the company's Cloverhill bakery business or its Picard stake would have to be sold off to ease balance sheet concerns.

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While Mr Hunter was of the view that only one of those two assets would have to be sold, head of Swiss equities at Kepler Cheuvreux Jon Cox wrote that unless both the 49 per cent Picard stake and the Cloverhill business were sold, "it could be a close call" for the company to be within its covenants at the end of this year.

Mr Cox, one of a number of analysts to downgrade their recommendation on the food group on Friday, said the “shock” profit warning has triggered renewed speculation that the baked-goods maker would have to sell shares in an effort to raise capital. However, he said this seems unlikely “particularly given chairman Gary McGann’s comments on the issue”.

Clients

Shares in the embattled company, which also makes buns for clients including McDonald's, had fallen 8.87 per cent by the close of business on Friday, following a 21 per cent drop on Thursday, after Berenberg, Mirabaud Securities, Société Générale (SocGen), AlphaValue and Kepler Cheuvreux downgraded the stock.

SocGen cut the company’s price target and downgraded its recommendation to “sell”. AlphaValue downgraded to “reduce”, while the other three analysts downgraded to “hold”.

Goodbody said its “buy” position on the stock is under review.

Aryzta's recent weaknesses will trouble its new management team led by former DAA boss Kevin Toland. He took over as chief executive in the wake of the resignation of Owen Killian in February last year following a series of profit warnings as the company lost various contracts in the US.

Dividend

In December, Aryzta off-loaded its La Rousse brand to the Musgrave Group in Ireland for a sum believed to be in the region of €30 million. Additionally, it gained a dividend from its stake in French frozen food company Picard, the sale of which has been mooted for some time.

The €447 million purchase of Picard in 2015 was badly received by investors but, at the time, Mr Killian insisted the investment was “consistent with Aryzta’s strategy of consumer relevancy through diversifying markets and channel positioning”.

That investment came after the food group acquired Canada’s Pineridge Bakery and the US-based Cloverhill bakery in 2014 for €730 million.

In its trading update on Thursday, Aryzta said it expected to generate more than €450 million by the end of this year from non-core asset disposals.