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EDITIONS
Tuesday, 21 May, 2002, 12:49 GMT 13:49 UK
Iceland lease deal sparks share surge
An Iceland storefront
Sales at Iceland stores have edged higher
The Big Food Group, the company behind the Iceland chain of UK frozen food stores, found its shares in hot demand on Tuesday after it announced plans to refinance its debts.

The group is selling 31 of its properties - all but three of which are stores - to French insurer Axa for 129m in order to lease them back.


The resolution of the sale and leaseback deal is the first evidence of external confidence in the company's future for a long time

Schroder Salomon Smith Barney
The deal will cost it 2.3m a year, the amount by which leasing charges outweigh the savings on interest and depreciation.

It is also planning to raise 150m by issuing new bonds at high rates of interest, while its banks have decided to extend its loan facility by 300m.

The total debt burden on 29 March was 404m, down 100m on the year before.

Off the hook

Analysts saw the move as a sign that Iceland, long considered an also-ran because of its liabilities and poor recent performance, might be pulling itself around.

It also reduced the risk of a rights issue - a process whereby a company asks existing stockholders for more money in exchange for fresh shares.

The response was a healthy boost to the Big Food Group's share price.

By 1100 GMT BFG shares were at 101p - up 15 pence, or 17.4%, on the day, although at one point they had reached a high of 106p.

The rising stock price is a welcome break from a year in which the shares have dropped from almost 200p in August, to a five-year low of 76p last Thursday.

The recovery started the following day, as Fidelity Investments disclosed that it had raised its stake in the Big Food Group twice in less than a week.

Crawling towards improvement

The news, which calmed rumours that the sale-and-leaseback deal was on the point of collapse, was accompanied by a trading update showing the group's sales had grown 2.2% in the six weeks to 10 May, after a 0.3% fall in the four weeks before that.

For the Iceland stores alone the rise was 0.1% following a 4% decline.

Brokers were broadly supportive.

"The refinancing structure is now virtually in place, current trading suggests the poor performance may have bottomed out and the continuing reduction in net debt is pleasing," said Schroder Salomon Smith Barney in a note to clients.

"The resolution of the sale and leaseback deal is the first evidence of external confidence in the company's future for a long time."

But Investec analyst Kate Calvert remained worried about the long-term strength - or otherwise - of the Iceland brand.

"Sales growth, while positive, is far from acceptable," she said.

"There is an issue over how much it has cost to achieve this sales growth as Iceland has been promoting aggressively."

See also:

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