Finsbury Food (LON:FIF)

A £130m market cap AIM stock and one of the UK’s largest speciality baking group. FIF has 20% of the retail cake market, an important provider of hot cross buns and celebration cakes, often licenses / themed for the likes of films such as Frozen or Harry Potter. There is a growing food service business and morning good product is in growth, unlike traditional bread. The stock price hit 60p a few moths ago, falling for well over 100p, as a few events ‘collided’ (sellers, liquidity, cost inflation, Brexit) and this prompted the CEO & FD to buy stock. The current share price is back at 100p. The PLC has the power to buy back stock and this action was seriously considered but not done.

‘An interesting 12 months’, ‘not painless’ with price inflation falling away were the opening remarks from John Duffy, the CEO. FY 2019 revenue was £315m and June 2020 estimated to be £326m, by Cenkos their broker. The 1H results were ‘robust’ and FIF outperforming the market places that they operate in. Morning goods growth was +13.4% v market growth of 4.4% ( this number ex the discounters and a growing part for FIF, so better for them) and retail cake +3.5% v the market at 0.8%. Food service bread / morning goods growth was 4.2% against a guessed 2% market growth. 51% of 1H revenues was from cake, 38% bread and the main retailers make up around 75% of the customer base for bakery products. As always when selling to the food retailers there is a balance between the volume growth opportunities and the price charged for the products, here balancing the ever present ingredient costs of baking. This conundrum is now moving towards a growth strategy as input prices have settled.

1H revenue was £159m, +4.7%, PBT £8.8m, +18% with no IFRS impact. EPS was -2% to 4.8p because of non director level LTIPs awards and the 1H dividend set at 1.23p, up 6% and probably making a target of 3.7p for the FY. 3.7% yielder then at £1. 1H EBITDA was £15.1m versus £12.9m. Bank debt, at the 28/12/19 period end was £32m, down from £35m and something to watch. Operating margins were 5.6% (gross margins 31%) and down from 5.7% and good for a food PLC and ‘ ticking along nicely’. The…

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