Here's a bittersweet collection of food shares for the summer.
Most people, if given the chance would like to have their cake and eat it. Fortunately, if you choose the right shares the gourmands among you can experience the delight of owning foods shares that deliver a tasty profit.
Thorntons
I must admit to having a taste for chocolate and if you own 200 Thorntons (LSE:THT) shares you receive £34 of vouchers with your annual report. However, that's small consolation for any shareholders who bought them at £2 a share as the shares now trade at 71.5p.
Trawling through the latest interims also produces a bittersweet taste, more reminiscent of poor share selection than a chocolate box. Its interim results for the six months to 10 January 2009 made rather worrying reading. Although turnover had risen 1.3% to £128.4m, pre-tax profits had dropped 39% to £7.3m.
Of course, since these figures were published, the company has been boosted by strong Easter sales in its third quarter. It expects underlying pre-tax profits for the year ending 28 June 2009 of not less than £5m, which is going to be some way short of the £8.5m pre-tax profit it made in 2008. Net debt had also risen to £16.3m from £11.3m, resulting in gearing going up to 43.8%.
What shocked me most in the recent results was the admission that it is going to be placing 'much greater emphasis on careful cost management' to improve profitability. This should come as naturally as breathing to a company's management. Indeed, an inability to tightly control costs hitherto points at poor management.
In summary: this is the investing equivalent of a coffee crème and should be left untouched by more discerning palates. I suspect getting a taste for this chocolatier will fatten your waistline rather than your wallet. It is a shame as Thorntons is a well-known brand that ought to be doing better.
Northern Foods
Food maker Northern Foods (LSE: NFDS) supplies chilled foods, Goodfella's frozen pizzas and Fox's biscuits to supermarkets.
The company recently posted profits for the year ending 28 March 2009 of £12.1m. This was down from £45.4m last year. Revenues were £975.2m, which was up on last year's total of £931.9m.
The profit reduction was due to the cost of restructuring which came to £35.4 million. Underlying pre-tax profits rose 13% to £39m.
After dividend payments of £20.7m, a share buy-back of £11m and cash restructuring costs of £11.2m, the year-end net debt position rose to £206.7m.
It hasn't hesitated to cut supply contracts with a retailer where the margins aren't good and that takes courage. In addition, it has diversified: winning a 10-year contract with DHL Exel Supply Chain to provide the catering on British Airways short-haul flights from Heathrow. This begins in April 2010 and should provide a 'healthy' margin while utilizing spare capacity.
Consensus estimates put full-year operating profits at £54.6m. Estimates for pre-tax profits at £38.7m, which are lower due to pension costs.
The current share price is 54.25p and this gives an attractive yield of 8.3%. For the generous income, I think this is worth buying on further weakness.
Finsbury Foods
Finsbury Food Group (LSE: FIF), the cake and bread maker, has been in the news recently following a bid approach. However, the company isn't saying anything more about it, aside from expressing considerable doubt that it will lead to a takeover.
Martin Lightbody, chief executive, who sold Lightbody Group to Finsbury for £37.5m in January 2007, still owns 27% of the company.
Preliminary results for the six months ending 31 December 2008 showed pre-tax profits of £0.2m (2008: £1.6m) on turnover of £92.1m (2008: £82.8m). The reason for the plunge in profits was said to be the increased cost of raw materials.
The Group's total net debt as at 31 December 2008 was £42.9 million, including net borrowings from HSBC and loan notes.
Its next set of results are due out in September and on consensus forecasts it is expected to deliver a dividend yield of 9.1%. However, the company could choose to cut the dividend.
Finsbury's share price has risen since the tentative approach and currently stands at 24p. It will probably drop should a bid not materialise, and if the shares fall back to around 16p I think it might be worth looking at.
More from Chris Menon:
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