With real growth in the UK food sector – here are four small caps to check out
Companies: CBOX, FIF, HOTC, PFD
The food and drink industry is the largest manufacturing sector in the UK, it is said to employ around 4.3m people and generates some £121bn for the economy each year.
The industry makes up almost 20% of the total of UK manufacturing and contributes more to the economy than all other manufacturing sectors, including automotive and aerospace.
Employment within the sector has grown by over 19% during the last decade.
There are around 7,400 food and drink manufacturers within the industry supply chain, well over 95% of them are small and medium sized enterprises.
As an industry it is a major exporter, with its products going to nearly 220 countries worldwide, while the top three countries taking its products are Ireland, the USA and France.
The list of companies within this sector is, almost, endless, however I have selected just four that are UK small caps upon which I keep a close watch.
All four are manufacturers, two of which also operate directly within the retail sector, while the other two are important wholesale suppliers.
My Research-Tree ‘Pick of the Bunch’
Finsbury Food Group (FIF) – mkt cap £94m, price 72p
This group supplies to the major multiple retail grocers, ‘out of home eating’ venue operators and other foodservice providers.
It is one of the leading speciality bakers in the UK, with a product range taking in large premium and celebration cakes, small snacking bites and slices, rolls, muffins, morning pastries, gluten free breads, cakes and morning goods.
It has bakery division sites in East Kilbride, Salisbury, Manchester, Cardiff, Sheffield and Pontypool.
It also has a 50% owned operation in Poland through which it supplies and distributes its own and also third-party products.
Analyst Peter Renton at Cenkos Securities rated the shares of this group, then 63p, as a Buy late last November following the group’s AGM Statement. He saw significant value in the group’s shares, trading then on a pe of just 7.4 times, while also yielding a healthy 3.8%.
In mid-January this year Cenkos terminated coverage, and stood down as brokers to the company, thereby letting Panmure Gordon assume both the NOMAD and Company Broker roles.
Premier Foods (PFD) – mkt cap £748m, price 87.6p
This group manufactures and distributes branded and own label food products in the UK, Europe, and internationally.
The company offers its products through supermarkets, discounters, convenience stores, and wholesale and food service facilities, as well as through online channels.
It offers a portfolio of product categories, including flavourings and seasonings under the Bisto, OXO, and Paxo brands; cooking sauces and accompaniments under the Sharwood's, Loyd Grossman, and Homepride brands; and quick meals, snacks, and soups under the Batchelors and Smash brands.
The group’s products portfolio also comprises ambient desserts under the Ambrosia, Bird's, Angel Delight, Mr Kipling, and Cadbury brands; as well as ambient cakes under the Mr Kipling, Cadbury, and Lyons brands.
In late June last year, in one of their Quickviews, analysts Sara Welford and Russell Pointon, at Edison Investment Research, noted that the group’s innovation had continued to drive its growth. They reported upon the 2020 final results as being encouraging, with a positive outlook, but also observing the value discount upon the group’s shares was due to the very high levels of debt.
That debt level has since been reduced through the group’s sale of its stake in Hovis.
Cake Box Holdings (CBOX) – mkt cap £100m, price 247p
This specialist retailer of fresh cream cakes held up fairly well during the various UK lockdown periods.
The Eggfree Cake Box started with one small store in East London way back in 2008, its simple premise was that it makes celebration cakes without using eggs and offers an ‘on demand service’.
As it evolved its franchise chain expanded considerably and is now up to well over 150 branches. It manufactures and sells personalised fresh cream and egg free cakes. The company offers a range of cakes that include cupcakes, photo cakes, number cakes, fruit cakes, mendhi cakes, round cakes, kids cakes, platter cakes, and wedding cakes.
Subsequent to the interim results, in late November last year, analysts Chris Wickham and Hannah Crowe at Equity Developments were celebrating this group’s steady, sensible and sustainable growth. The shares were then trading at 191p, although they considered 250p as an appropriate fair value for them.
Hotel Chocolat Group (HOTC) – mkt cap £476m, price 379p
This group manufactures, sells, and retails chocolates under the ‘Hotel Chocolat’ brand name in the UK, Europe, and internationally.
It offers a range of chocolates, including gift, and rare and vintage chocolates, as well as related drinks, alcohols, and beauty products.
The company sells its products through a network of stores, as well as through online subscription.
It also operates restaurants, hotels, and cocoa estates and holds a small property portfolio.
The Royston, Cambridgeshire-based company operates 127 Hotel Chocolat locations in the UK and Ireland; and 4 in the US.
The foundations continue to be laid for international expansion, suggested Wayne Brown, analyst at Liberum Capital just over a month ago, following the group’s impressive H1 Trading Statement. The group’s Interim Results will be announced next Tuesday, 2nd March.
About the Author - The Small Cap Veteran
He has been around the track a few times, now this former stockbroker and AIM company boss, gives us his views and pointers on his specialist subject – The UK Smaller Company Sector.
His comments are his own, he is not giving readers advice on whether you should Buy, Sell or Hold any of the companies that he might mention in his market ramblings.
He does not know what you might be looking for in your market dealings, so it is imperative that you must make up your own mind on his column’s content.
Check up on the Research Tree Company Profile pages in helping to forge your own opinions.
There are masses of overvalued companies in the Small Cap arena, but there also remain a multitude of ‘value situations’ still out there well worth researching.
What does he look for?
In seeking out ’value’ he looks for companies that have:
- good balance sheets (even if they have borrowings),
- good market positions with products that are competitively priced both at home and abroad,
- good sales prospects,
- good operating margins, and
- creating reasonable earnings for both their workforce and their shareholders.
That is where Research-Tree really does come in so very handy.
A quick assimilation of what various brokers have to say about a particular company, can justify the requirement to delve even deeper into how it operates, its markets and its potential.
