I believe I have identified a cheap UK share that could be a great recovery play. Should I buy shares for my portfolio?
Defensive stock
Bakkavor (LSE:BAKK) is a leading international food manufacturing company that specialises in freshly prepared foods. It also provides the marketing and distribution of fresh produce, management of properties, manufacture and sale of custom and private label savoury and baker products, and customer invoicing and financing of receivables. Its key markets are the UK, the US, and China.
I also believe Bakkavor has defensive traits that makes it a more attractive prospect for my portfolio. Firms that produce or distribute consumer staples, which are goods people tend to buy out of necessity regardless of economic conditions, are generally thought to be defensive. Food stocks are in this bracket in my opinion.
I believe with such a wide range of services and defensive traits, Bakkavor is likely to show significant growth in the coming years. With this in mind, I currently believe it is an excellent cheap UK share.
Recovery play
As I write, Bakkavor is trading for 120p per share. Until recently, it was a penny stock which is traditionally identified as a stock trading for less than 100p. This time last year shares were trading for 67p per share. That’s a 79% increase in share price in 12 months. At current levels I believe it could be an excellent cheap UK share.
Between the beginning of the calendar year and as I write, Bakkavor’s share price has increased from 81p to current levels, which is a 48% increase. I believe this is a reflection of how well it has done since reopening.
Bakkavor released a Q2 trading update covering the 13 weeks to 26 June 2021. In the UK, revenue for the half year was up 4% compared to the first half of 2020. Like-for-like sales increased 12% in the quarter compared to 2020 and were only down by 1.4% compared to 2019. In the US, like-for-like sales increased 48.7% in Q2 compared to 2020 levels when Bakkavor was most affected by the pandemic. In China, significant like-for-like sales growth in the quarter of 40.8% saw volumes return to pre-Covid levels and much closer to 2019 levels.
Cheap UK shares have risk too
My main concern with Bakkavor and its recovery opportunity is that the pandemic is far from over. If a fresh wave of infections hit, restrictions could cause a drop in demand in any of its respective markets. This would affect its bottom line and its recovery to date. Sales are currently burgeoning across all its markets and new restrictions could be a blow and slow recovery.
Despite the clear and obvious risk Bakkavor faces, I do believe it is an excellent UK share with good prospects to recover from the pandemic and continue its growth journey. It operates in three huge markets that can aid this growth. In addition to this, it has a track record of success and sales which will only increase under normal market conditions in my opinion. I will seriously consider adding shares to my portfolio just now.