- Gross margin down
- Costs from failed transactions
We already knew the headlines from Finsbury Food’s (FIF) financial year after the pre-close trading update released in July. The Aim-traded speciality baker, which manufactures cakes and breads for the grocery retail and foodservice sectors, posted record revenue as it put through price increases and actioned efficiency measures in the face of surging costs. But, as these full-year results confirmed, this couldn’t prevent a hit to profitability.
The top-line performance was in line with market forecasts and was helped by both higher prices (up by 5 per cent) and volume improvement (growth of 9 per cent). Sales in the company’s key division, UK bakery, were up by 12 per cent as foodservice revenue enjoyed a 38 per cent uplift. Finsbury’s other division, overseas, posted sales growth up over a quarter.
But as with sector peers, the company is faced with significant cost pressures. While management initiatives delivered £5mn of gross savings, chief executive John Duffy noted that “the impact and scale” of inflationary pressures in the year was over £27mn. It wasn’t a surprise that gross margin fell by 50 basis points to 32.4 per cent, though given the circumstances this wasn’t a bad result.
Management wants to grow the business through “targeted acquisitions and strategic investments”. Finsbury’s increased investment in European distribution subsidiary Lightbody-Stretz, taking its stake to 85 per cent, looks like a canny move. However, the company also disclosed £2mn of “acquisition costs for aborted transactions” in the year.
Panmure Gordon analysts said if the right acquisition opportunity does not emerge then the company’s “low valuation gives it the attractive alternative of share buybacks that would be materially earnings-enhancing”. Failing M&A and buybacks, Finsbury “will ultimately attract a bid” in the broker’s view. Either way, the rating looks undemanding with the shares trading at just seven times Panmure’s forward earnings forecast for 2023. Hold.
Last IC View: Hold, 86p, 21 Feb 2022
| FINSBURY FOOD (FIF) | ||||
| ORD PRICE: | 76p | MARKET VALUE: | £ 99mn | |
| TOUCH: | 76-78p | 12-MONTH HIGH: | 103p | LOW: 65p |
| DIVIDEND YIELD: | 3.3% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 91p* | NET DEBT: | 25% | |
| Year to 02 Jul | Turnover (£mn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 304 | 4.48 | 1.70 | 3.30 |
| 2019 | 315 | 13.6 | 7.30 | 3.50 |
| 2020 | 306 | 2.87 | -0.60 | 0.00 |
| 2021 | 313 | 17.0 | 9.80 | 2.40 |
| 2022 | 357 | 14.3 | 8.40 | 2.50 |
| % change | +14 | -16 | -14 | +4 |
| Ex-div: | 24 Nov | |||
| Payment: | 21 Dec | |||
| *Includes intangible assets of £87.4mn or 67p a share | ||||
