Speciality bakery business Finsbury Food (FIF:AIM) has reported a resilient first half performance with growth in sales, profit and dividends.

This performance is good when you consider the headwinds facing the business, namely the consumer income squeeze and increasing commodity costs compounded by weak sterling.

HOW MUCH MONEY HAS IT MADE?

Results for the six months to 30 December 2017 reveal 6.3% improvement in profit before tax to £8.4m.

Revenue improved 0.7% to £157.8m, notably helped by strong sales of Finsbury Food’s range of Mary Berry cakes, while like-for-like sales edged up 2.5%.

The half year dividend has been lifted by 10% to 1.1p.

Admittedly, Finsbury’s gross margin fell 70 basis points to 30.1%, pegged back by a spike in butter prices, not to mention higher egg and cocoa prices.

Yet the operating margin expanded 20 basis points to 5.5% thanks to Finsbury’s relentless focus on efficiencies and high levels of capital spend to stay competitive.

WHAT DOES THE COMPANY THINK OF THE PERFORMANCE?

Chief executive John Duffy says: ‘Our revenue and profit growth in the period illustrates the group’s resilience to what has been a sustained period of market-wide headwinds.

‘The investment into the business that we have implemented over this and previous years, alongside a focus on operational excellence, has positioned us well and enabled us to continue to deliver robust results.’

In his outlook statement, Duffy adds: ‘The UK grocery market continues to be challenging with food inflation becoming entrenched. As previously noted, this is a result of increased commodity prices, the adverse impact of US dollar and Euro exchange rates and the annual above inflation increase in the National Living wage.’

Finsbury Foods’ CEO insists the business is working hard to mitigate this input cost inflation through continued operational efficiency, investment in automation and price increases.

He is confident that Finsbury can not only withstand the current headwinds but will continue to progress.

STAYING (DEAL) HUNGRY

Cenkos analyst Simon French ‘strongly’ reiterates his buy recommendation, leaving his year-to-June 2018 forecasts unchanged. He expects the company to report £17.7m adjusted profit before tax (2017: £17.1m) and a 3.3p dividend (2017: 3p).

French comments: ‘We believe the group has demonstrated admirable strategic and operational insight to continue grow profits against an unstable backdrop’, adding that cash generation remains a key attraction of the investment case.

Finsbury Food reported net debt of £16.6m, down from £21m a year earlier and reduced its net debt-to-EBITDA ratio to 0.6 times.

This leaves the cash generative £151.2m cap, whose backers include Ruffer, Miton Asset Management and Polar Capital’s value-seeking fund management duo Georgina Hamilton and George Godber, with considerable scope to invest in competitive advantage and fund acquisitions in a consolidating industry.

French at Cenkos notes Finsbury Food signed a new £45m revolving credit facility in February plus scope for the facility to increase by up to a further £45m ‘thus providing financial capability for acquisitions, historically a key part of the group’s strategy.

He adds: ‘It has also purchased the freehold of its Lightbody bakery for £2.6m, giving it complete control over its major trading assets. Whilst headwinds are expected to persist we believe the group is well placed to continue to grow profitably.’

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Issue Date: 19 Mar 2018