- Chinese volumes on the rise
- Cost synergies beat expectations
Change is afoot at Bakkavor Group (BAKK). US-based hedge fund Baupost has offloaded its 20.1 per cent stake in the private-label food manufacturer to LongRange Capital. Shareholders will be curious to discover the new extent – and nature – of private equity influence, as LongRange’s Robert Berlin is set to join the board in a non-executive capacity.
Berlin is no stranger to the group, having served on the board between 2016 and 2018, and has “a deep understanding of [Bakkavor’s] business as well as our markets”, according to group chief executive Mike Edwards.
The news came a day before the group delivered a broadly favourable full-year trading update with like-for-like revenue growth of 5.3 per cent. This was driven in part by recovering volumes in the Chinese market – the smallest (by revenue) of Bakkavor’s three geographic locales but one with “high-growth” characteristics, in addition to being “cash generative and self-sustaining”.
Financial performance has been bolstered by measures put in place in November 2022. Increased efficiencies and cost synergies are running ahead of expectations. Operational net debt is also “significantly ahead of market expectations at c£230mn”, the result of a targeted approach to capital expenditure and improved working capital management.
Adjusted operating profit is forecast to be at least in line with the upper end of the range of market expectations. Revenue for the current year is forecast to be slightly ahead of 2023, although volumes may come under pressure due to deteriorating consumer sentiment in the UK and ongoing changes to the US business.
As the unexpected rise in UK inflation demonstrates, the malign influence of cost-of-sales increases could continue to weigh on margins for the foreseeable future, especially given the steep rise in shipping costs brought about by events in the Red Sea.
Last IC view: Hold, 101p, 06 Sep 2023
