The recent recovery in stock prices has made it difficult for investors to decide which shares to buy. Where there were plenty of bargains to be had only a few weeks ago, they’re now thinner on the ground. This is worrying for investors. Despite recent positives of falling virus cases, there’s still an unusually high level of uncertainty. Personally, I think we need to be seeing discounted share prices before investing at this moment in time.
Here’s a cheap share I’d buy today
So which share would I buy now? One stock that does look good value is Finsbury Food Group (LSE: FIF). The business specialises in manufacturing cakes, breads and morning pastries. As well as producing these goods under its own brands, Finsbury also makes own-label products for supermarkets, and manufactures under license under brand names such as Mars, Disney, Thorntons and even Mary Berry.
At the time of writing, the group’s market capitalisation is £78m, meaning the shares trade at less than eight times last year’s earnings. The share price is also cheap relative to last year’s sales of £315m and to its book value of £113m (at December 2019). This year’s dividend has been scrapped to preserve cash in the fight against Covid-19, but if it were to be reinstated, it would yield almost 6% at the current share price.
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Finsbury hasn’t been immune to the effects of lockdown. While 80% of its sales are to the retail sector, the remaining 20% are to the foodservice sector, which includes restaurants, bars and concessions. This sector has been hit hard. But the retail channel seems to be rising to the challenge with management noting healthy demand, especially in breads. Besides resilience in its main retail market, the company also has a few other things on its side. Finsbury has access to up to £90m from its credit facilities. Adn net debt is a manageable 1.5 times EBITDA. I think it can cope with lockdown just fine.
The company is looking to grow both organically and through acquisition. The decision to move into higher-growth areas, like artisan and sourdough breads, as well as ‘free-from’ and gluten-free ranges, seems to be paying off. In the six months to the end of December 2019, revenue rose 5%, while net profits rose a whopping 18%.
Room to grow
The overall UK bakery market that Finsbury operates in is worth more than £6bn a year. As the group gains scale, it should also gain market share. International sales represent about 10% of total sales, and the group recently built a new manufacturing facility in Poland. Given the size of the market, I think there is considerable scope to improve sales and profits, both within the UK and internationally.
With first-half net profits coming in at £7m, even if the group only breaks even in the second half, then the shares would still only trade at 10 times this year’s earnings. Finsbury’s foodservice market has been badly hit, but it will come back, in time. Given the cheapness of the shares, I also believe the group could be a takeover target for larger international players. Its value makes this stock unique, when many other shares have risen back to less attractive levels.
So, if you’re wondering which shares to buy today, then I’d definitely recommend this one. In fact, I’ve just bought Finsbury shares myself.
