A correction at Cardiff-headquartered cake, bread and bakery goods manufacturer Finsbury Food (FIF:AIM) should alert value-hungry investors. Shares believes internal efficiency projects and topline investment initiatives are helping the £33.6 million cap mitigate cost pressures and will drive good earnings growth over the next two years.

Last month’s (24 Jan) pre-close update flagged in-line trading in the six months to December as well as confidence that full-year taxable profits will show progress. However the food producer also cautioned butter and chocolate prices had spiked, keeping pressure on margins in combination with general cost inflation. Trading is challenging within the cake category, where Finsbury is the UK’s number two ambient packaged cake player, as grocery multiples have been promoting heavily.

Downgrades ensued, yet Shares believes these revisions could prove overly cautious. Investment in the cake business to improve production efficiencies is underway, while the expansion of the Nicholas & Harris bread business should boost sales growth. Furthermore, Finsbury Food’s dramatic strengthening of its balance sheet, helped through last year’s sale of its Free From business for £21 million, has freed up cash for investment in competitive advantage and earnings-enhancing acquisitions.

A sharp pullback looks overdone and the shares are good value at 51.3p.