Baker Finsbury Food is looking like a credible turnaround story. In recent years the company has been tackling its debt, which peaked at £50m in 2008, whilst eking out growth from the troubled food retail sector. Yet results for 2011-12 show that Finsbury is making good progress, even though its shares are still priced for a disaster that now looks unlikely.
- Falling debt
- Organic growth
- Targeting growth markets
- Forecast to reinstate dividend
- Poor consumer environment
- Rising costs
Debt has been the key issue for some time and a focus for Finsbury's bosses, who came on board the then-struggling company in 2009. Now the situation no longer looks so bad. At the end of June, net debt including deferred considerations was £33.9m, a £3.2m drop in the preceding 12 months. This leaves debt representing a manageable 2.6 times last year's underlying cash profits, while net interest costs were covered 4.9 times by cash profits.
What's more, the company has a £47m debt facility with HSBC which stretches out to 2017. The balance sheet and borrowing position of the company is also strengthened by the fact that Finsbury owns a number of freehold sites. So, while the group's balance sheet still carries debt equal to 70 per cent of shareholders' funds, it has begun to look reasonably solid. Broker Cenkos, which advises Finsbury, thinks it is sound enough for the company to reinstate the dividend this year. That could provide the grounds for re-rating its shares that - trading at less than half their underlying book value (see table) - are in "deep value" territory.
| FINSBURY FOOD (FIF) | ||||
|---|---|---|---|---|
| ORD PRICE: | 37p | MARKET VALUE: | £20m | |
| TOUCH: | 36.5-37p | 12-MONTH HIGH/LOW: | 37p | 21p |
| DIVIDEND YIELD: | 1.4% | PE RATIO: | 5 | |
| NET ASSET VALUE: | 88p | NET DEBT: | 70% | |
| Year to 30 June | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 179 | 1.78 | 2.3 | nil |
| 2010 | 168 | 4.87 | 5.7 | nil |
| 2011 | 190 | 5.95 | 7.6 | nil |
| 2012 | 207 | 6.53 | 8.0 | nil |
| 2013* | 213 | 6.79 | 8.1 | 0.5 |
| % change | +2 | +4 | +1 | – |
Normal market size: 3,000 Market makers: 6 Beta: 0.5 *Cenkos forecasts | ||||
The performance of the business also looks better. The company achieved impressive growth last year. Cakes sales were helped by exports through Finsbury's 50 per cent-owned joint venture Lightbody and were 9 per cent ahead. Meanwhile, its bread and gluten-free products increased sales by 10 per cent. The group looks well positioned in some fast-growing areas and is the market leader in the gluten-free baked goods; this immature market is growing at around 15 per cent a year. Finsbury also had strong bread sales thanks to growing demand for freshly-baked bread. Its sales success has also been helped by investment in innovation and a number of brand licences, including Disney, Thorntons, Weight Watchers and Vogel.
However, the company still faces a tough consumer environment and the spectre of rising input costs. This means progress will not come easily, but the organic growth achieved over the last year is encouraging. With the balance sheet now looking stronger, there is also the potential for bolt-on acquisitions.
