LON:FIF Is it really such a laggard or just flying beneath the radar?

24th Aug '20 by Berksbee

12 comments 887 reads

Thought I would start a discussion about Finsbury Foods as its share price performance has me a bit confounded. As background, it's part of my BLASTIG (Blame Stockpedia/I'm a Genius) Portfolio which I stared back in mid-Feb to help justify my investment in the Stocko subscription. Good news on that front is that as we speak it is 30% up on the all-share performance – the “I’m a Genius” part of the equation is winning so far!

Finsbury Food (LON:FIF) is part of the Portfolio and is definitely the dunce of a bright class, but I can’t quite understand why.

Its as Green as they get on the Stock Rank and even greener on my preferred QV Rank (92 & 99) currently.

It dropped like a stone in March like many other shares – but has stayed there

It’s in the Food Business 75% to Retailers 25% Food Service and its performance in its latest update had revenue down just under 3% for the year. So hardly a disaster and pretty safe sector as they go.

Trading update July 15th (Paul didn’t comment as it was released on a very busy announcement day - do companies do this to avoid his eagle eye?).

• Resilient overall performance with revenues of £306.3m

• Steady monthly improvement during Q4 following significant reduction immediately after lockdown

• The second half sales (in food service) were a combination of good momentum and strong trading in January and February in line with market expectations, followed by significantly weaker trading at the outbreak of the pandemic at the end of March and depressed but progressively improving sales through April, May and June (down 24%, 19% and 15% on last year respectively).

• Continued strong cash generation resulting in significant debt reduction with period end net debt of c.£27m

The balance sheet seems ok to me – sure it has a £11m pension deficit but this is hardly huge and was there when the share was much higher.

The interim dividend was suspended but, based on the above, I can see that coming back.

My suspicion is that eat out to help out is going to provide a serious shot in the arm in the next quarter.

Am I missing something or is the verdict that I need to be patient?

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Gromley

24th Aug '20

A good summary Berksbee – have a thumb up!

To skip straight to your final question, I would suggest that patience is sensible here, but it does depend on your investment process (for me, I will be patiently considering this on my watch list, rather than buying at this stage.)

You make some good points, just to expand and in some cases offer an alternative view :

The 24% reduction in net debt- representing about £8m positive cashflow in the year is pretty impressive and comforting. They did take advantage of furloughing, but did not take up any government loan schemes. They however do not mention whether they took advantage of the “time to pay” tax initiatives, so the cashflow could be flattered.
Whilst revenues are “only” down c. 3%, it worth recognising the profile. “sales through April, May and June (down 24%, 19% and 15% on last year respectively).” So there is still a bit of a way to go.
The analyst forecasts were cut in February and March, before anyone really knew much about what as going to happen, but have not changed since. Revenue is c. £9.5m below those figures so that could be a c. £3m hit on Gross Profit, this could leave EPS as low as 5p rather than the 9.7p currently ‘forecast’ although opex reductions could reverse some of that.

Overall therefore FIF looks pretty ‘safe’ to me and in the medium term, a return to past valuations looks possible/probable , but it is actually pretty boring and whilst some in the market are fixated on tech & bio, it may continue to fly under the radar for a while yet.

Presumably the full results will be out in mid-September (unless there are covid delays) so I will be interested to see both the outlook statement and the market reaction.

Berksbee

25th Aug '20

Helpful - Thanks. One additional thing I picked up was a major shareholder was selling down their stake - so there's something of a glut of shares on the supply side.

WAVEY

7th Sep '20

I'm with you Berksbee - also have in my WISEPUNT portfolio and see all the same reasons to like it that you do ....... and adding as it gets cheaper for no clear reason to me

20th Oct '20

Thought I would had a PS to this having read the share chat on LSE. It would appear that a major investor - Gresham House? is divesting its stake - hence the drift downwards. On the plus side the directors wives have been buying and in quite large amounts - e.g. £150k. If it gets to 50p I think I will hold my breath and buy some more.

26th Oct '20

Well it went to 51p and I bought for my sons portfolio. The price and the Directors wives buying were the catalyst. Early doors looks an OK decision but I'm not in it for the very short term.

19th Nov '20

Well good news coming out of the AGM. Encouraging that their restaurant trade loss has largely been mitigated by a growth in takeaways. Held my breath and bought some (for my son) @52p the other day - so someone's happy. Think the div will be reinstated and I can see no reason why this wont float back to around 100p. Interestingly the Stocko momentum rank looks awful right now but the rise may have been too sudden to be picked up. I'm still under water with my holding but am starting to be rewarded for being patient.

iangrant22

Agree with all that Berksbee. It's looking very solid at current SP and does indeed look destined to run higher. Stocko Momentum rank is indeed still awful. I can only think it's down to low volume as the price has really picked up in recent days. I've added quite a few more on the AGM today.

Yes agreed Berksbee "as long as the public sector (education) and take-away channels remain open, our current foodservice performance will remain robust." together with turnover only being down around 3% now is a key positive.

Although I finally bought earlier in the month, I was still nervous the shut down of hospitality might have a bigger impact - I think there may be more upside to come as the market cottons on to this. Although on the other hand there is still ample room for more doom and gloom if the degree of lifting of restrictions from 3rd December disappoints (as I think likely).

Happy to hold now and contemplating a small top up

Interesting that Ian refers to the poor Momentum Rank Score.

Worth remembering that the MR is made up of two parts :

Price Momentum - which is poor as one would see, but will steadily creep up - and

Earnings Momentum - which is a mix of reds and greens at the moment.

One 'red' here sticks out to me as a false negative :

% 3m EPS Upgrade FY1 : - 11.9%

Current year forecast on stocko is 8.84p/share and stocko shows that 3 months ago it was 10p.

In keeping with many stocks, analysts effective suspended their forecasts at the start of the pandemic , because they just did not know how bad to make them. (I've noted this with other stocks too). October was the first time they felt able to put together a view for FIF , so at worst this measure should be n/a rather than negative. In fact though thinking about what this measure is trying to gauge - think of it this way - has sentiment on this years earnings for FIF improved or worsened in the last 3 months? I know what I think!

Hi Ian & Gromley - thanks for your insights. One other thing I picked up from the AGM results (which I don't normally look at) - is that they voted to start a share buy back program. This should all but negate any downward pressure from Greshams selling their stake - which is starting to look unwise on the latters part as it was mostly at <55p - but time will tell.

20th Nov '20

Well, both the SP and Momentum have moved up today. Got my seat belt on nice and tight and looking forward to the journey...

24th Nov '20

Glad your seatbelt is on nice and tight - looks like it needs to be.

27th Nov '20

It's a delightful view from up here at 78p. Even Stocko Momentum score is looking to join in the fun. StockRank 83 and rising...

LON:FIF Is it really such a laggard or just flying beneath the radar?

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Berksbee

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