The company that proves you can have your cake and eat it
THE latest series of The Great British Bake Off is well under way but millions of people still just want to buy cakes and treats rather than spend hours in the kitchen making their own.
Finsbury Foods caters for those consumers. The company makes celebration cakes with Disney logos, bite-sized brownies and fancy cupcakes as well as artisan breads, muffins and doughnuts.
It even produces cakes on behalf of former Bake Off star Mary Berry.
Customers include all the major supermarkets and a variety of wholesale catering firms.
Midas recommended the shares in January 2015, when the price was 63p and chief executive John Duffy revealed an ambition to take the stock market valuation from below £80 million to more than £100 million.
Today, the price is 102½p and the company is valued at more than £130 million. Progress has been hard won, particularly since the Brexit vote last year.
As Duffy admitted last week, when he announced full-year results to June 30, 2017, prices of imported goods such as sugar and cocoa have been affected by sterling’s weakness, while inflation and the national living wage have hit costs in the UK too.
Nonetheless, the group delivered a 5.6 per cent increase in profits to £16.6 million and a 7 per cent rise in the dividend to 3p.
The company is compensating for higher costs by adapting recipes, making some products smaller, putting up prices where possible, reducing promotional activity and using robots to drive down wage bills.
Duffy is also focused on constant innovation, such as cupcake platters and handbaked breads, where consumers are prepared to pay a little bit more for top quality goods. The chief executive keeps a close eye on underperforming businesses too, such as a loss-making pastry factory in North London, where consultations are ongoing regarding possible closure later this year. Looking ahead, brokers are pencilling in broadly unchanged profits and a small dividend increase for the current year with stronger growth expected thereafter.
Midas verdict: Investors who bought in 2015 have done well and may be tempted to sell a few shares. But they should keep the majority of their stock. Finsbury is cheap compared with its peers and, at 102½p, the price should continue to move ahead. New investors could bear that in mind as well.