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Why I’d buy this recovering FTSE stock now for its massive growth potential

I’ve wanted to like FTSE SmallCap company Premier Foods (LSE: PFD) for ages, but the big debt-load on the balance sheet has always put me off. However, things appear to be changing, and the shares are perky today on the release of the full-year results report.

Surging earnings for this FTSE stock

Earnings have been surging over the past couple of years. And looking back, the stock was a steal at the bottom of the coronavirus low in the spring when the price dipped well below 20p. Well done if you bought some shares in the company back then. Today, they’re changing hands at 65p, as I write.

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On paper, Premier Foods has a lot going for it. It operates in the fast-moving-consumer-goods space, which is traditionally seen as a defensive sector. You’ll be familiar with many of the firm’s food brands, such as Ambrosia, Angel Delight, Mr Kipling, Bachelors, Birds, Bisto, OXO, Mc Dougalls, Homepride, Sharwoods, Loyd Grossman, and others.

Meanwhile, with its 15 manufacturing sites and offices in the UK, the company makes around 96% of what it produces from ingredients sourced from British suppliers and farmers. As we enter a post-Brexit and low-carbon world, I think localised supply chains will become increasingly important.

But there’s also an effort going on to expand sales abroad. International sales make up around 6.5% of the total right now. But I can see much potential for growth overseas, based purely on that low figure. With a determined push, we could see sales rise quickly in the years ahead.

Exciting international expansion

Premier Foods reckons it has “significant” businesses in Ireland and Australia already. And the directors have identified “further opportunities” for a range of the company’s brands in “a number of markets” including New Zealand, USA, South Africa, and Canada.

I think that’s exciting because the government seems to be at advanced stages in the negotiations about new Free Trade Agreements with many countries. The New Zealand discussions appear to be going particularly well, for example.

Today’s figures show that in the trading year to 28 March, revenue rose by 2.8% year-on-year and adjusted earnings per share lifted by 5.4%. Importantly, the net debt figure fell by almost £62m to just over £408m on a pre-IFRS 16 basis. For context, the firm reported an operating profit of £95m for the year, so this is still a big debt load. But the directors are bearing down well on the problem and vow to continue to do so.

Chief executive Alex Whitehouse said in the report the year had been “a period of considerable progress.” Indeed, there have been 11 consecutive quarters of UK revenue growth “fuelled by successful innovation strategy.” And the company revealed a “landmark” pensions agreement which has the potential to “significantly” reduce future funding requirements.

There’s no shareholder dividend available with this one. But I see a firm emerging from its prior financial problems. On top of that, there are big opportunities for expansion ahead. This a share I’d like to own right now.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.