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FIF 22 February 2014




I thought it might be worth taking a quick look at FINSBURY FOODS, where the shares are currently sitting at 57p.
The last time I covered them in the weekly column was back in 2011, when the shares sat at 20p.

Part of the negativity surrounding the company back then was its hefty level of debt, which was a bit too much for some would be Investors to stomach.


However, those that opted for a punt on this one have of course done well, as the company boosted profits and has since offloaded its
Free From Range for £21m along with a placing that raised £3.8m, thus slashing debt.


The question for me now, is whether there is potential for further upside from the company, which undoubtedly operates in a highly competitive market.

Finsbury it is worth noting delivers its Interim results on 24 March 2014 following a pre-close Trading Update that was announced on the 24th of last month.


Although the shares have done well since that last look, they have actually declined from over 70p reached back in September 2013, to the current price, but which in turn is showing signs of recovery, having actually slumped to 47p last month.

So, what about the expectations for this one, a company now very much focused on cakes and bread, where it counts Waitrose and Thornton’s as just two of its major customers.

Perhaps understandably, margins can be tight in this sector while rising raw material prices can also be problematic in that many encounter difficulty passing increases on to customers.


With that in mind, Finsbury’s performance over the last couple of years has been pretty impressive, returning a pre-tax profit of £6.6m for last year.

The numbers pencilled in for this year do show a decrease, with Broker Cenkos anticipating a pre-tax profit of £5.8m which in turn gives EPS of 6.3p. That puts the shares on a forward PER of under 9, falling to 7, if next year can return growth as forecast.

In the recent update to the market, the company stated that it remained on track to deliver numbers in line with market expectations for the first six months, but expected cost inflation to impact the second half.

That apparently resulted in Cenkos reigning in slightly on the previous expectations which had sat at £6.3m.

Sceptics may argue that the numbers pencilled in for 2015 of £6.5m may also fall short, but given that Finsbury has executed a number of changes to both boost and protect its position which should bear fruit next year, then the numbers don’t look aggressive.

On that basis,I feel the shares are worth watching, particularly as the revamped business may well make a complimentary acquisition.

There should also be some scope for recovery within its 50% owned Lightbody Europe, which focuses on various products including licensed biscuits aimed at children along with partyfizz amongst others.

Sales here have been flat of late, where it serves large European retailers such as Auchan and Carrefour, athough recent economic indicators pointing tentative signs of recovery in Western Europe may provide future uplift.

One point that wouldn’t be lost on anyone taking a look here, is the fact that two Directors sold shares last year, including non exec Chairman Martin Lightbody, who disposed of 6.5m last July at a price of 53p.

That may not however be as ominous as it may at first seem as it preceded the rise in the share price and was largely put down to satisfying Institutional demand.
And on that subject, I have noticed that Ruffer increased its stake in the company at the end of last month from 13% to 14%.


From a personal perspective I don’t expect to see the shares rush Northwards ahead of the Interim results, but equally, on the current rating they do look decent value which should negate downside.


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