Finsbury Food rebounds

As a business that deals in a currency of cakes and bread, Finsbury Food (FIF) has been unfortunate with changing economic realities. A temporary decline in the 'out-of-home eating' foodservice sector, weak consumer confidence, and the consumer trend towards healthy eating or “wellness” have all had an impact. Despite this, the group’s 2021 full-year results represent solid progress: the Aim-listed speciality baking group recorded growth across key metrics and announced a 2.4p dividend per share for the year after no pay-out for 2020. 

Management is aware of the need to diversify, especially as foodservice revenues were down 15 per cent as it continues to recover from the impact of lockdowns. The group highlights “vegan, artisan, and wellness” as key consumer trends it must face up to. It is encouraging that no impairment has been recognised this year for the Ultrapharm acquisition, which provides premium gluten-free products. The carrying value was written down by £7.5m in 2020 due to pandemic troubles and the business being “more immature than expected.” The lack of any non-cash charge helped the group’s bottom line, with £1m income from significant non-recurring items compared to a negative £10m last year. 

Total group revenues of £313m were just below pre-pandemic levels. Revenues for the group’s core UK bakery division rose by 1 per cent for the year, although second half growth of 9 per cent indicates that things are moving in the right direction. Adjusted operating profits rose by 8 per cent to £16.1m, though this was constrained by a 7 per cent rise in expenses.

Despite the encouraging profit postings, the market is wary after management’s statement that “we are likely to face persistent challenges around inflation and skilled labour and driver shortages". Panmure Gordon gives an 2022 EPS estimate of 11.4p, falling to 10.9p in FY 2023. While the share price has risen by 67 per cent over the last year, it remains to be seen to what extent the group will be impacted by general economic headwinds, particularly with regard to underlying costs. It is sensible to wait for now. Hold. 

Last IC view: Hold, 102p, 24 Feb 2020