Aim-listed bakery company Finsbury Food Group (FIF) is hoping for a great British cake-off now that it has acquired the licence for Mary Berry's line of baked goods, which are set to hit store shelves during the second half of its financial year. The group cited consumer research that found Ms Berry to be the definitive authority on cakes, with eight out of 10 consumers stating that they would be more likely to buy a cake that had her name attached to it. The line is the latest addition to the UK-wide speciality bakery group's range of licensed brands, which includes Disney, Weight Watchers, Thorntons and Vogel's.
- Recognisable brand names
- Improving margin
- Growing dividend
- Low earnings multiple
- Challenging market
- Higher costs
Wider pressures from promotional offers at supermarkets resulted in flat revenues in the six months to the end of December. But this looks impressive compared with the wider industry, which experienced a decline in cake volumes of 4.8 per cent and 1.5 per cent by value. What's more, the added pressures of the national living wage and increasing commodity prices mean rivals are likely to be struggling. Finsbury looks in an enviable position to exploit any opportunities this industry strain may bring thanks to its strong balance sheet, and recent investments in its business should also put it in a strong position to mitigate these headwinds.
Indeed, ongoing efforts to make the business more efficient through multiple initiatives, together with the benefits of recent capital expenditure, appear to be paying off. Despite the negative pressures, the operating margin rose from 5.1 per cent to 5.3 per cent in the six months to December 2016, which pushed operating profit up 4 per cent to £8.3m. Pre-tax profit was up 5.3 per cent over the half-year to £7.9m and EPS increased by 4.5 per cent to 4.6p. This all followed record capital expenditure in 2016 of £12.1m, designed to improve efficiency and target growth markets, including the opening of a new artisan bakery facility to produce products for retail and foodservice clients, including Waitrose.
Management is looking to boost growth through acquisition, too. The company bought Fletchers Bakeries in 2014 and Johnstone's Foodservice in 2015 and is currently on the lookout for companies that either help to consolidate market share in existing product areas or that will help it diversify deeper into specialist products and markets. The balance sheet gives decent scope for deals, with net debt of £21m equating to just 0.8 times annualised cash profits.
And while weak sterling has not been helpful to its domestic division, its international business is heavily exposed to the euro, which has had a favourable impact on sales and profit, with most of this business in France. International revenue was up 31.7 per cent in the most recent half-year to £17.6m, with operating profit up 26 per cent to £1m.
| FINSBURY FOOD GROUP (FIF) | ||||
|---|---|---|---|---|
| ORD PRICE: | 114p | MARKET VALUE: | £149m | |
| TOUCH: | 113-115 | 12-MONTH HIGH: | 139p | LOW: 103p |
| FORWARD DIVIDEND YIELD: | 2.8% | FORWARD PE RATIO: | 11 | |
| NET ASSET VALUE: | 80.7p* | NET DEBT: | 20% | |
| Year to 30 June | Revenue (£m) | Pre-tax profit (£m)** | Earnings per share (p)** | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 176 | 6.6 | 6.7 | 1.0 |
| 2015 | 256 | 11.9 | 8.1 | 2.5 |
| 2016 | 320 | 16.5 | 9.7 | 2.8 |
| 2017** | 320 | 17.1 | 9.9 | 3.0 |
| 2018** | 328 | 17.7 | 10.2 | 3.2 |
| % change | +3 | +4 | +3 | +7 |
Normal market size: 3,000 Matched bargain trading Beta: 0.18 *Includes intangible assets of £77.3m, or 59p a share **Panmure Gordon forecasts, adjusted PTP and EPS figures | ||||
