MIDAS SHARE TIPS: Finsbury Foods set to rise – even in leaner times
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TIPS FOR SHARING MIDAS: Pie maker Finsbury Foods, which partners with Great British Bake Off star Mary Berry, will rise – even in less favorable times
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‘Let them eat cake’ has unfortunate resonance in the current cost of living crisis, but Britain’s largest packaged cake maker, Finsbury Foods, hopes the country won’t give up its sweet tooth as inflation bites.
If you’ve had Thornton’s caramel shortbread, a Mary Berry chocolate sponge, or a boozy Gordon’s gin cake, you’ve been eating the fruits of the company’s work, probably unknowingly, as the company produces and sells well-known cake brands under license. at many UK supermarkets.
Finsbury is also responding to changing food needs. After purchasing the Welsh gluten-free bakery Ultrapharm in 2018, it now supplies gluten-free bread, pastries and sandwiches to supermarkets and coffee shops.
Help: Great British Bake Off star Mary Berry partners with Finsbury Foods, which successfully cut costs
Finsbury produced record-breaking full-year results this week, but is already warning that the impact of rising costs will be significant in the coming months, while an audience with limited resources will be less likely to splash out on a cake with their coffee this winter.
Fattening the numbers
Given the current climate, the AIM-listed company has done well to keep results in line with expectations. Chief executive John Duffy cited the company’s increased investment abroad (primarily in France, Belgium and the Netherlands), as well as a strong post-Covid recovery in pie purchases as reasons for the 7 percent increase in UK sales and the rise in 27 percent abroad for the year to the end of June 2022.
The company thinks improved gluten-free recipes have boosted demand. But Duffy also credits Finsbury’s ‘Brilliance’ program for increasing profits. So far, this cost-cutting and efficiency strategy has enabled the company to offset the increases in inflation by either cutting costs or raising prices using a new IT system.
“We were able to mitigate most of the impact of the macro challenges through revised commercial arrangements, operational improvements and other supply chain initiatives,” said Duffy. ‘We will continue in the same vein in the new financial year, as this pressure is expected to increase.’
Full-year figures showed that profits were hit by the cost of aborted transactions and currency movements. Duffy says that while the company is still considering acquisitions, the current market makes this difficult. Earnings declined when these special items are taken into account, but the company posted a 12 percent increase in pre-tax profits excluding these items.
Lean times ahead
While Finsbury made dough as the sun shone, investors are rightly concerned about what lies ahead, given the rising cost of living and declining consumer confidence. The impact of inflation and cost pressures amounted to £27 million in the group’s last fiscal year, putting a significant strain on margins. Unsurprisingly, Finsbury forecasts further cost pressures in the coming months, which will further weigh on the bottom line. Duffy says the additional costs will be much higher this year.
This explains the low rating of the stocks, which have fallen by 18 percent in the past year and by almost 28 percent in five years.
Chairman Peter Baker acknowledged (yes, really) that at this point “the future is difficult to predict with certainty as the impact of inflation is not yet known.” However, he adds that management “remains confident in our strategy.”
He says: “Ultimately, we have a strong track record as a company in difficult times. This gives the board confidence that the group will continue to make progress and achieve profitable growth.”
Midas verdict: Investors considering Finsbury should decide whether they believe in Baker and Duffy’s strategy and ability to get through tough times. If they do, there’s a lot to be said for cutting off a piece of the business. The stock trades at an undemanding seven times future earnings, yielding 3 percent. At this level, and with sterling weak, they could be a tasty morsel for a private equity firm or foreign rival.
The company also has a new credit facility, which should help it cope with the turmoil and perhaps make its own acquisitions.
Duffy believes the Brilliance program will give the company more savings as it rolls out integrated systems across Finsbury’s brands. They won’t negate the impact of inflation, he admits, but they will help.
Those with patience can benefit in the long run. Buy on current weakness.
Traded on: GOAL ticker: FIFA Contact: finsburyfoods.co.uk or 029 2035 7500