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  • Writer's pictureMark Watson-Mitchell

Finsbury Food Group – higher prices drive revenues while volumes are broadly flat

Go into any food retailer in the UK and it is a fair bet that it is selling products baked by the Finsbury Food Group (LON:FIF).


The bread for your morning toast, ready for butter-spreading or egg-dipping. The candle-filled centrepiece for a memorable celebration. The buns, muffins and other treats that turn teatime into quality time – that is what this group is all about.


And remember it is ‘hot cross buns time’ soon!


A good interim showing


In the group’s first half to the end of December 2022 it increased its sales impressively, up 14.7% at £190.9m, leading to expectations of another £210m in the current six months to end June.


The pre-tax profits at the half-way were £6.1m (5.7m), while earnings were 3.7p (3.2p) and the interim dividend was 0.87p (0.83p) per share.


CEO John Duffy stated that:


"Finsbury has once again delivered a robust performance in the first half to December 2022.


We have seen a stable performance in UK retail, ongoing recovery in UK foodservice and continued growth in our Overseas division all despite the challenges of continued significant input cost inflation and falling consumer confidence.


Looking ahead, we expect to continue to navigate a challenging macro environment as inflationary pressures look set to persist with the short-term outlook remaining difficult to predict.


However, Finsbury is now a nimble and adaptable group and I am confident that we remain well placed to continue successfully executing on our strategy."


The Business – 98 years old


It is one of the leading speciality bakers in the UK, with a product range taking in large premium and celebration cakes, small snacking bites and slices, rolls, muffins, morning pastries, gluten free breads, cakes and morning goods.


This group supplies to the major multiple retail grocers, ‘out of home eating’ venue operators and other foodservice providers.


It has bakery division sites in East Kilbride, Salisbury, Hamilton, Manchester, Cardiff, Sheffield and Pontypool.


There is also an 85% owned operation in Poland through which it supplies and distributes its own and also third-party products.


At the end of last month, it acquired the Coatbridge, Scotland-based Lees Foods company in an earnings-accretive £5.7m cash deal.


Two main market segments


In the Bread and Morning Goods market, the company bakes and supplies artisan and speciality bread, buns and rolls, hot-cross buns, muffins, doughnuts, and much more, both pre-packed or for in-store bakeries.


In the Cake sector the group is renowned for its celebration cakes, round cakes, cake bites, cake bars and seasonal cakes, before adding the Lees Foods range of meringues, teacakes and snowballs.


Analyst Opinion – worth 135p a share


Estimates by analyst Alex Chatterton at Panmure Gordon suggest sales to end June this year of £399.1m, with adjusted pre-tax profits of £16.1m, generating 11.0p in earnings and paying out a 2.6p dividend per share.


For the coming year his figures are going for revenues of £425.7m, while profits could rise to £17.6m, with 11.3p earnings and a 2.6p dividend.


Chatterton has already raised his Target Price twice in 2023, from 127p, to 130p and recently up to 135p a share.


Conclusion – a takeover possibility


This leader in its various markets has in the last year been implementing efficiency improvements which should prove beneficial.


It has a resilient business model and its shares at 99p are on a significantly undervalued rating, while offering a big upside, especially if it succumbs to a takeover.

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