Finsbury Food Group

BUY

27/09/2011 Ben Jaglom

Luxury bread maker Finsbury Food Group (FIF) has reported a 12% growth in sales as health-conscious consumers flocked to its 'free-from' range.

The AIM-quoted group declared pre-tax profits of £5.8m (2010: £5.4m) on turnover of £189.6m for the year to July. Its cake division registered a 14.2% increase in sales to £139.6m while its bread and 'free from' operations saw turnover grow to £50m (2010: £43.7m.) Net debt fell from £36.5m to £32.7m.

Chief executive John Duffy remarks the last financial year saw Finsbury 'getting the entire group back into growth after a difficult year'. He points out that commodity inflation had made life 'quite tricky' for Finsbury.

Citing the strong performance of Finsbury's 'free-from' range, which includes breads that are for example wheat- or gluten-free, Duffy notes that it is driven by a 'lifestyle' market which purchases the breads 'out of choice as opposed to medical necessity'. He describes this as a 'growing' market.

Looking forward, Duffy argues that as a company focused on the premium end of the market, Finsbury had been 'hit in the past' by supermarkets moving towards the value sector. 'Yet our research has shown consumers do not want cheap cake. What they want is good cake at a fair price.'

Analysts at house broker Panmure Gordon lowered their earnings forecast from 8.3p to 7.7p a share for the year to July 2012 following the results.

Operating in a challenging environment, Finsbury has done well in growing sales and profits amid the difficulties the British consumer is experiencing, also paring down its debt at a respectable rate. Furthermore the group's 'free from' range look as if could generate further growth. Trading at just over 3x 2012 earnings we rate shares in Finsbury as a hold.