Peter Webb, fund manager turned market commentator looks at Finsbury Food Group (FIF)
Today's interim results from Finsbury Food Group (FIF) a leading UK manufacturer of bread, cakes and morning goods are testimony to just how difficult it can be for a company to progress in very competitive market sectors. Despite a massive £50m capital investment in the 5 years to September 2018, significant re-organisation and rationalisation of existing activities and acquisitions, underlying EBITDA and profitability has stood still.
Following a 34% fall in share price to 81p since the full year results last September, the shares (according to broker estimates) are now trading on a current year PER multiple of 8.6x and offer investors a generous yield of 4.3%. However, debt has consistently failed to reduce despite the business model supposedly being inherently cash generative and the late last year acquisition of Ultrapharm, the Free From bakery manufacturer for £17m cash looks ill timed and expensive.
When looking back over the years Finsbury looks like a company that operates in very competitive markets where significant investment is required to stand still. Management have done everything they can to grow but pricing pressure from the major retailers and relentless competition mean that the potential for progress is limited.
Debt now stands at circa. £34m versus a market capitalisation of £105m and unless the relentless need to invest to compete on price abates will not be falling soon. Management efforts to overcome inherent challenges in the sector in which the company competes are to be applauded but the relative cheapness of the shares is justified by the lack of growth potential.
