I was shocked I didn't use that subtitle the first time; apparently my punning skills have been wavering recently! Anyway, Finsbury Food (LON:FIF) , a bakery company, made it on to my list of interesting shares that deserved further research - and, as you might have supposed, I have looked at them before. Three times, actually, which slightly worries me given I couldn't actually remember if I had covered them at all. I'm not sure if that says more about my memory or the number of companies I've covered. I suspect the first. Anyway, here are my three posts before, each time saying that I thought the company was cheapish, but never buying:
And nothing since then - so it's been almost a year. A good time to refresh things! I'll keep my run-down of the company pretty brief, since in the last few days Richard Beddard put together a blog post which sums up the company and the issues it faces more eloquently than I can; find that here. In short, it's a company which appears cheap on an earnings basis; its P/E is 7ish - and which no longer has the issues with debt it once did, as when I first looked at it. They produce cakes and bread, mostly own-brand, but also with some stuff under licence. Obviously, it's low margin; the company stays competitive by running a high asset turnover - basically, they make lots of cakes very efficiently. The free-from segment was niche and appeared to offer more growth prospects, but - as I said at the time - selling it seemed broadly positive for the business. They appeared to get a decent price, and from a strategic/financial objective, it made intuitive sense.
It appears cheap, then - it looks like it earns exceptional returns on capital in a commoditised industry. Now, you might accuse me of being fickle, but - while that's a great characteristic - it's also my biggest niggle with the group. Why does such a company earn such an apparently fantastic return on its capital? Their customers are supermarkets - not exactly well known for being generous with…
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