A solid set of prelims from the Real Good Food Company (LON:RGD) appeared to be the cue for a bout of profit-taking today.
No matter the company’s broker, Shore Capital, raised its profit forecast for 2011 by more than a quarter, investors were determined to cash in after an 82 per cent rise in the share price over the past three months.
So the stock fell 1.75 pence to 42.5 pence a share.
A shake-up in European sugar pricing hit the company’s largest business, and led to a 7 per cent fall in group sales to £200.1 million.
Against that backdrop operating profits grew by 3 per cent to £3.6 million in the 12 months ended December and per share earnings were up 44 per cent thanks to a fall in the effective tax rate.
Shore reckons the company is on course for a pretax surplus of £4.8 million this year after negotiating probably the trickiest period in its recent history.
The unwinding of EU support could have been an unmitigated disaster for Real Good Food, which owns the Napier Brown sugar distribution business.
It sells to the big consumers such as United Biscuits, Nestle and Mars as well as the smaller food companies and also trades under the Whitworth brand, which is stocked by supermarkets and corner shops.
That the group has traded through the period profitably owes much to the shrewd management of food industry veteran Pieter Totte and his team at the Liverpool-headquartered group.
The outlook is far more certain now, with the price of sugar rising, and the full benefits of this improvement set to filter through this year.
However, where there used to be a surplus of sugar, there is a now a shortfall, which could lead to supply problems.
The company is addressing this by sourcing from producers in Germany, the Netherlands and France, as well as its normal UK suppliers, and outside the EU from Africa and the Caribbean.
The group also comprises an ingredients operation called Renshaw, which is based in Liverpool and turns over around £40 million a year, and Hayden’s, based in Devizes in Wiltshire. The latter makes high quality patisserie and desserts, mainly for Waitrose but also Marks & Spencer.
At Hayden’s, the manufacturing process has been streamlined, prices hiked and gaps in the production schedule filled by producing frozen cakes for coffee shops.
The results showed the first impact of that restructuring, while Renshaws had an “outstanding year with a performance that surpassed management expectations”, said Shore Capital’s Phil Carroll.
“In terms of the outlook, sugar pricing has improved substantially through the last quarter of 2010 into the current year with supply both in the EU and the world market being impacted by poor harvests and strong demand driving price rises,” the analyst added.
“In turn, this has allowed Napier to rebuild its margins in the new contract season which began in October 2010 and through into the current year.
“As a result we are now upgrading our full-year 2011 expectations for this division.
“We believe the prospects for Renshaw are also positive with trends in home-baking remaining positive so we are also nudging up our expectations for this division.
“Haydens remains in recovery but we continue to expect the business to move into profit in this financial year.”