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Finsbury Food Group is getting it right and expansion is on the cards. With a derisory valuation and a tasty dividend on offer, the shares look appetising, writes Mark Watson-Mitchell.
It all seems to be on the rise at this company. Its pre-tax profits for the year to 29 June were up an impressive 203% and its strong second-half performance has continued into the first half of the current financial year.
Finsbury Food Group (LON:FIF) is big in cakes. It takes in a range of brands and bakery companies across the UK and Europe.
In the UK it is one of the largest speciality cake and bread bakery groups, supplying a wide range of leading multiple retail and foodservice companies. It has manufacturing bakery sites in Pontypool, Manchester, Salisbury, Sheffield, Cardiff, Hamilton and East Kilbride.
The company’s products include large premium and celebration cakes, small cake snacks like bites and slices, hot cross buns, gluten-free bread and cakes, as well as its artisan range of healthy and organic breads, baguettes, doughnuts, rolls, muffins and morning pastries.
Its overseas operations include a 50% stake in Lightbody Stretz, which distributes the group’s UK manufactured products, as well as product supplied by other bakeries, mainly to the European market. The group also has its own manufacturing facility at Zywiec in Poland.
The group’s brands and bakery companies include Memory Lane cakes, Lightbody bakers and confectioners, Johnstone’s Food Service, Fletchers, Nicholas & Harris of Salisbury, Kara Baking Foodservice, and the recently acquired Ultrapharm gluten free bakers.
It produces high-quality bread, cakes and bakery snacking products that are targeted at a number of growing channels and market niches.
As an example, its Kara foodservice brand distributes in the UK to over 300 wholesalers and end-user operators, such as hotels, pub and restaurant chains, fast-food outlets and contract caterers. It also exports products to Denmark, France, Germany, Portugal and Spain. The aim is to make Kara the number one frozen bakery brand for the foodservice market.
It is already the largest supplier of celebration cakes to the UK’s multiple grocers. Its licensed brands include such properties as Peppa Pig, The Simpsons, Hello Kitty, The Minions and Me To You. It also has Disney licenses such as Frozen, the Marvel Superheroes, Star Wars, Mickey and Disney Princess.
The group has arrangements with The Vegan Society, Mary Berry, Thorntons, Weight Watchers, Vogels, Village Bakery and Cranks.
There are just over 130m shares in issue, of which institutional holders own the majority. The list includes Ruffer (18.16%), Miton (9.99%), Canaccord Genuity (9.31%), FIL Investment (5.37%), Investec Wealth (5.25%), Polar Capital (4.89%), London Finance & Investment (4.60%), Investec Asset (4.38%), and Downing (3.00%). The board owns just 2.72% of the equity.
The 203% recovery in pre-tax profit to £13.6m for the 2018/19 year was on the back of a 3.8% lift-up in sales to £315m. Earnings came out at 7.3p and the dividend was 3.5p per share.
For the current year, estimated revenue of £325m could see profits up to £15.8m, worth nearly 10p per share in earnings, covering a 3.8p dividend.
Finsbury Food Group is getting it right now and expansion is on the cards. Its shares at 84.5p yield an attractive 4.1% and stand on a mere 11.5 times historic and 8.5 times current p/e – that is far too cheap.
My end-2020 target price is 110p.