I reckon FTSE 250 incumbent Bakkavor Group (LSE: BAKK) is a no-brainer buy for my portfolio right now. I’ll be looking to buy some shares the next time I have some cash. Here’s why!
Freshly prepared food
Bakkavor is a leading provider of freshly prepared food and ready meals such as frozen pizzas, salads, pastas, and more.
So what’s happening with the Bakkavor share price? As I write, the shares are trading for 95p. At this time last year, they were trading for 113p, which is a 15% decrease over a 12-month period.
Macroeconomic volatility hasn’t been kind to most stocks, and Bakkavor has been impacted, if you ask me.
My investment case
Covering the bearish aspects first, continued turbulence is something I’ll keep an eye on. This is because weakened consumer spending could dent Bakkavor’s performance and could hurt investor returns and growth plans in turn.
In addition to this, Bakkavor is at the mercy of increased costs and potential shipping issues with current geopolitical events. Rising costs could hurt profit margins and shipping issues could dent its growth aspirations in the US and China, two potentially lucrative markets it is targeting.
So to my bull case then. The ready-to-eat food market is growing rapidly. This is in part due to the increasingly busy lives we lead and ease of prepared foods. I know I’m guilty of indulging in such options when I’m busy! This trend could boost Bakkavor, especially as it looks to grow its profile and presence.
Next, Bakkavor’s growth plans are exciting, in my view. Forays and heavy investment into the US and China could pay off handsomely in the longer term, and boost the shares and payouts. In fact, there are already signs it is making headway in both markets.
In its pre-full-year trading update released last month for the year ended 30 December 2023, Bakkavor said like-for-like revenue growth across the group would come in at 5.3%. However, in China alone, it reported growth of 32%.
On the other hand, performance in the US wasn’t as good as China, or its core market, the UK. However, the business did pre-warn about this as it continues to invest in this territory and explained it may take some time for this market to bear fruit so it wasn’t an unexpected result. Profit is set to come in at the upper end of expectations. I’ll be watching out for full results next month.
Finally, a dividend yield of 8% is significantly higher than the FTSE 100 and FTSE 250 averages of 3.8% and 2%. However, I’m conscious that dividends are never guaranteed. Plus, the shares look decent value for money to me right now on a price-to-earnings ratio of 15.
Final thoughts
Overall Bakkavor looks to me like a solid business at present with exciting growth prospects too. Plus, as it operates in the food sector – and a growing segment at that – the business has a sense of defensive ability about it, in my view. After all, everyone needs to eat!
There are short to medium-term headwinds the firm must navigate. However, I’m confident that the firm is well placed to overcome volatility, and continue to grow and provide consistent returns to investors.
