Finsbury Food Share Discussion Threads

[aleman] 11/4/2012 14:23

Spot and futures prices tell a slightly different tale, with short futures on the rise (probably due to drought and cold weather reducing yields on this year's winter crops) but longer futures have the price easing back again so the medium term outlook still seems relatively muted.

May 2012 Wheat contract £/tonne


May 2013 Wheat £161
May 2014 Wheat £156

Cocoa and sugar futures look pretty flat. No obvious signs of any problems in the pipeline there. The egg price spike is purely a short term problem due to EU legislation on battery hens. The UK butter price (like global prices) is down sharply in recent months, to £2400 from £3600 at the start of the summer.



Even if FIF is not yet benefitting from lower spot prices, they should now have the opportunity to hedge forward a few years at lower prices.



Those stories in 2009 and 2011 about the world running out of food seem a little exaggerated now.

[bonio10000] 11/4/2012 14:09

Looks like Sugar and Wheat prices might be on support from the above graphs.

[boffster] 10/4/2012 22:48

Boring repetitive drivel deleted

[markt] 10/4/2012 22:13

Aleman
my main recent point about margins....is that imho the margins should have increased due to adding 20M of turnover....if assume that existing turnover stayed the same and that fixed costs like depreciation of machines, HQ costs, dir costs, finance costs were all paid for by the base turnover (of 180M)

the extra 20M of turnover should imho have been more profitable than it was.
I think profit was up 300k or something. very small profit margin imho.
althought noting that 20M is only 10% extra...not enough to completely change the numbers...

===

Another point perhaps is that if FIF keeps adding same % turnover with same effect on PAT.....the debt may stay the same over next 3 years due to working capital needs.....keeping the share price down perhaps...
with the risk that if it reports one bad 6 month period or bad Xmas or Easter trading or egg scare then the share price could get hit due to the debt.
And if they were it give workers inflation as pay rise for 3 years it would not do the numbers much good imo. Or if problems of Eurozone creep to the UK could hit cake sales. (Greece, Spain, Portugal....spending has fallen hard...in UK WH Smith turnover down 5%)

On the other hand there are +ve pts to FIF shares...such as low P/E if ignore debt..and high turnover etc relative to cap. price.

[jpjp100] 10/4/2012 16:26

ha ha, one of my quotes is cited by markt

I feel suitably proud :-)

I think the story on this thread is pretty well balanced actually. There has been a decent discussion on the positives and negatives

the thread markt started, on the other hand, is pretty much entirely focussed on events from 3+ years ago that were made under the previous management team - which everyone accepts were pretty bad - with no regard for the current / future picture

[markt] 10/4/2012 15:13

SR

They're not very keen on any -ve posts !.....I started up other thread as a result '-ve aspects, FIF'
---

Get many posts like this

"good spot re the hot x buns. I have a couple of packs here are they are very tasty".

....not much about investing in there imo


as well as many good posts that do discuss the financial numbers in detail.....while many posters imo have future results for next 5 years in their minds as "g'teed" ...of course each person has their own views on future results and perception of risks, hence some buyers and some sellers, normal...

[boffster] 09/4/2012 21:15

We're just on tenterhooks waiting for you to post again.

[sir rational] 09/4/2012 19:14

OK need a few days to formulate a few arguments - on my hols right now

[aleman] 08/4/2012 01:35

markt - 2 Apr'12 - 12:39 - 60 of 65

How do you calculate that margins are being recovered ?
(accounts stated that margins were down !, you are saying the dirs are wrong or ...??)

I read the updates. I know margins are down year over year but recent updates have got less severe and we've seen commodity prices have fallen this year until recently. Pressure hasn't gone but it looks to have eased.


26/09/11
The difficulties we face should not be underestimated. The global commodities bubble has exerted unprecedented pressure on margins. Prices for butter, sugar and wheat have soared over the past 18 months. I foresee no respite in commodity or general cost inflation in the near term. Pressure, if anything, is likely to increase the impact of such factors, redoubling our efforts to alleviate price rises by focussing on internal efficiencies and productivity initiatives.

24/11/11
The operating environment remains particularly challenging. Shopper behaviour continues to be affected by the economic uncertainty, and we have experienced ingredient and input cost inflation year on year. Higher sales, resulting from volume growth and price increases, assisted by further internal efficiency initiatives, have partially offset this cost inflation, although operating margins are lower year on year.

23/01/12
The trading environment remains very tough, with the challenges of a financially squeezed shopper, and stubbornly high commodity and input price inflation. That said, Finsbury is continuing to invest in each of the businesses to further improve operating efficiencies, and drive growth through Innovation to mitigate against these headwinds. The high first half growth, delivered through both volume and price rises, complemented the Group's efficiency initiatives to largely offset year on year commodity inflation, although the operating margin percentage was slightly lower than prior year as a consequence.

26/03/12
The trading environment remains very tough, with the challenges of a financially squeezed shopper, and stubbornly high commodity and input price inflation. That said, Finsbury is continuing to invest in each of the businesses to further improve operating efficiencies and drive growth through innovation to mitigate against these headwinds. The high first half growth, delivered through both volume and price rises, has complemented the Group's efficiency initiatives to largely offset year on year commodity inflation, although the operating margin percentage was slightly lower than prior year as a consequence.

[jpjp100] 07/4/2012 15:57

SR, I disagree with your reasons

FIF is being shunned imo because the balance sheet is pants.

It is, as far as I can see, in a position to be better at converting ingredients to products than its competitors and it has the added advantage of a good portfolio of brand licences.

I don't think a fund raising round is a serious option for a while.

[aleman] 07/4/2012 15:55

Let SR make his case in more than one liners.

The shares are already so low that they discount the margin pressure. The PG forecast seem quite cautious in that it is based on falling operating margins in the larger cake division by about 0.1% per year in 2012,2013 and 2014 yet that still expects the shares to outperform thanks to the strong cash generation. I think there is a good case that margins might not fall further or might even increase, in which case PG's share targets of 40p for this year and 54p for next may prove conservative. There's no denying the risk but there seems to be a significant margin of safety at the current price.

Please elaborate on item 2 with regard to how undifferentiated ingredients affect the cake division and bread and Free From division.

Why raise capital on a market cap of £14.5m and dilute the directors' 10%+ share options when the company is already generating new capital for them at around the £5.5m p.a. mark? I can't imagine anyone issuing capital at a cost of 40%+ unless the life of the company was under immediate threat.

[sir rational] 07/4/2012 14:49

1. margins under pressure

2. trouble with ingredients is there's little in the way of added value or differentiation

These are the 2 main reasons investors are shunning FIF.

Debt is probably manageable over time (quite considerable time) given the free cash flow. There could easily be a capital raise to speed things up and that is another negative.

[spaceparallax] 07/4/2012 14:44

Yes and no - the poster in question is not really contributing anything valid on FIF. Preferring to pimp his own shares.

[sir rational] 07/4/2012 14:02

What's that? Somebody neutral points out a couple of weaknesses in the investment case and bully boy thread owner says: right, I'll ban you?

Strange way to run a thread.

[aleman] 06/4/2012 20:59

MUANGSING - I evidently haven't made myself clear. I can see that FIF's lower EV/EBITDA rating probably makes it more attractive (so that the EV methodology probably has some merit) but I don't consider Devro a basket case, despite its 9.3 rating, and was considering how FIF would compare if you loaded it up with debt to reach Devro's 9.3. They would then be equal in rating but would they be equally enticing with FIF having much more debt in the ratio and DEV much more market cap?

I'm not saying the EV method isn't worth being represented in a portfolio of tools, just that lots of ratios can be a bit mechanical and I prefer to assess by looking at various numbers, with strong emphasis on cashflows, try to look where I think the business will probably go, then decide if I want to own it at the price offered, preferably with big discount thrown in by a market oversight or misapprehension. I'm not averse to a company that might struggle if the price discount is big enough, whether some ratio rules it in or out. I AM averse to companies that don't generate cash and can't be predicted to in future, regardless of how low the p/e is. (Note a number of Chinese companies that have low P/Es but poor cashflows and some dodgy ways of recognising income and cash if you root through the notes.)

I'm not afraid of companies with debt and like the mature cash-generative dividend-paying companies that often use a certain amount of debt to increase return on capital. I think the EV method (and the market generally) may exaggerate the burden of the debt for some of them (depending how reliable cashflow will be) which is why I have looked at it briefly in the past and tended to find its results a bit odd and disregard it. It probably works better for other types of businesses, perhaps in sectors I don't scour as much.

I've been tracking ZTR for a while but haven't bought any.

[sir rational] 06/4/2012 15:51

trouble with ingredients is there's little in the way of added value or differentiation

[jpjp100] 06/4/2012 15:47

Sir Rational

you may as well say that

margins will always be under pressure

it is a true statement of any food manufacturer supplying the big retailers

llef - good spot re the hot x buns. I have a couple of packs here are they are very tasty.

[sir rational] 06/4/2012 15:34

margins under pressure

[llef] 06/4/2012 15:31

snippet from waitrose weekly report ending 30 march

Heston from Waitrose Earl Grey & Mandarin Hot Cross Buns have been flying off the shelves, with sales rising by 63 per cent this week, supported by our new advertising campaign, which features the chef as a young boy.

from here

[bonio10000] 06/4/2012 10:57

Excellent post, as always, Aleman.