These are tense times for holders of Bakkavor Group (LSE: BAKK) stock. Its share price has fallen 33% over the past 12 months as fears over the weak consumer landscape in the UK have intensified. Market sentiment really fell off a cliff in late February with the release of spooky full-year trading details, but I would argue that recent weakness makes it a good contrarian buy right now.
In that full-year release there was plenty to admire. Despite the pressures on shopper spending power Bakkavor — whose fresh produced foods can be found on the shelves of all of the so-called Big Four’supermarkets like Tesco and Sainsbury’s, as well as other major retailers like Aldi and Waitrose — still managed to raise like-for-like sales in its home territory by 1.8%.
The result paid tribute to the quality of its fresh products but there are signs that the FTSE 250 firm is starting to seriously succumb to the tough trading environment. It warned in February that “subdued consumer confidence and inflationary pressures have continued into 2019, and therefore we remain cautious and expect little improvement in underlying market conditions.” Indeed, Bakkavor said that it expected “limited growth” in its UK marketplace this year.
It’s understandable that shareholders were minded to sprint for the exits again following that worrying commentary. The political and economic problems in Britain make things tough for the food industry, and as I type there are no signs of improvement on either front.
That said, I believe that Bakkavor’s share price could make a comeback in the coming months. In February’s update the firm said that it expected a “significant improvement” in trading during the second half of 2019 and a rise in UK turnover in response to recent contract wins in its core categories, evidence of which would put a rocket under market appetite once again.
A big deal abroad
But this is not the only reason to be optimistic. Bakkavor may be troubled at home but it’s not suffering the same misfortune abroad, territories in which its major clients include the likes of Starbucks and McDonalds. International like-for-like sales boomed 16% in 2018, reflecting changing global trends where consumers are turning their backs on frozen and long-life foods in favour of healthier, fresher products.
And the business is investing heavily to keep sales shooting higher in foreign climes, building two new factories in the US last year and three in its other white-hot growth market of China.
Because of this, City analysts are tipping Bakkavor to bounce back immediately from an expected 7% earnings decline in 2019 with a 5% rise in 2020. They predict that this will give the firm the confidence to keep paying generous dividends too (yields sit at 4.4% and 4.8% for this year and next respectively).
In spite of current troubles at home, the future remains extremely bright for the firm, an outlook I don’t feel is reflected in its dirt-cheap rating, a sub-10 forward P/E ratio. I reckon the foodie’s a great contrarian buy that could make you richer in the years ahead.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.