The sale of a gluten-free baking business for £21m looks like it could prove a decisive event for our Finsbury Food (FIF) share tip. High-debt levels, in our option, have been the key reason behind the deep-value rating the market has applied to shares in the cake and baked goods company.
Even after a 17 per cent jump to 51p on news of the disposal, Finsbury's shares still trade at a substantial discount to the last published book value per share of 88p. What's more, based on updated forecasts by house broker Cenkos, the company’s enterprise value (adjusted for the drop in debt) stands at just 4 times this year’s expected cash profits. That compares with the price it got for its gluten-free business of equivalent to 7 times cash profits.
The gluten-free market did represent a good area for growth but with debt forecast to fall to £10m by the end of June management will be in a strong position to pursue other growth opportunities rather than focusing first and foremost on paying down borrowings.
