Kitwave LON:KITW, the AIM-listed, Northumberland-based wholesaling company, specialising in the supply of ‘Impulse Items’ such as sweets and chewing gum sold at retail checkouts, frozen and chilled food, fruits and vegetables, alcoholic beverages and dry groceries, will publish its interim results for the six months ending 30th April 2023 on Tuesday (4th July).
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Although not a household name, Kitwave is a significant supplier to small retail outlets and corner stores across the UK and overseas. On just the Impulse Items segment, according to market research agency Nielsen, treating and snacking in the UK market is worth GBP13.3bn. Within this, confectionery is worth GBP5.5bn and driving growth. Much of this product appears in the ‘till aisle’ of small convenience stores to tempt shoppers to grab a snack while waiting in the queue to pay for their main items. Although Kitwave does not release specific figures on the market, some analysts estimate that the company has a market share of around 10% of the chewing gum/penny sweets/chocolate bar ‘till aisle’ market.
That is notwithstanding the company’s lines of Frozen Food, including ice-creams (one of the most inflation-sensitive consumer products according to the Office of National Statistics), chilled food ‘deli’ items, bottles of beer and packets of spaghetti. The main Kitwave warehouse must be a Aladdin’s Cave of delights for every small child (and many big people too) and given the rate of food inflation over the last 12-months in the UK with ever-increasing revenue a treasure trove for investors.
Kitwave delivering compelling returns
This potential has translated into compelling returns for shareholders. Closing the day (29th June) at 288p, the North Shields-based company has offered investors a 53% year-to-date return, a 100% one-year return with its shares ranging in price from 136.9p to 320p over a 52-week period.
The company has a market cap of GBP202m.
Kitwave’s strong share performance has been unsurprising, given the train of positive trading updates in the last year. Last July the wholesaler confirmed it had got over the Covid slowdown, storming back into profitability reporting a GBP4.4m profit after a GBP3.4m loss in 2021. This was driven by a surge in revenues, up 51% year-on-year to GBP233.3m The company also managed to widen its margin by nearly 20%.
On the back of stronger trading Kitwave opened a new 60,000 square foot warehouse in Wakefield, West Yorkshire and acquired M.J. Baker Foodservice, an independent distributor in the South West of England.
In November, things were still going well for Kitwave, and despite the general economic malaise in the UK, rising materials and fuels costs and an increase in interest rates, the company stuck to its guns and backed its updated expectations for the full-year.
A month later, Kitwave bought WestCountry Food Holdings Limited for GBP29m expanding its reach in the South West of England. WestCountry seemed a shrewd buy, given its turnover of GBP29.7m and profit of GBP3.9m in 2022. The wholesaler came into the Kitwave stable carrying net assets of GBP11m.
This February, Kitwave published its end-of-year results, reporting revenues of GBP503m, up 32% from 2022. With increased revenues came a 747.6% increase in profit from GBP2.1m in FY21 to GBP17.8m. The company was throwing off cash like a chocolate fountain at a kid’s party, earning GBP26.5m net cash from operations. The story didn’t end there, as Paul Young, Kitwave’s CEO, said: “The group’s strong performance has continued into the first three months of the new financial year.” Last month Young teased that the second half of the year was always better trading for Kitwave, and modestly suggested that the next set of figures might well be ahead of expectations.
Delivery solutions across the UK
Kitwave has come a long way over the last 25 years. Founded in 1987, following the acquisition of a single-site confectionery wholesale business based in North Shields, the company expanded its lines to include wholesale of frozen and chilled foods, alcohol, groceries, and tobacco to serve around 40,000 mainly independent retailers. That’s a lot of chewing gum.
With a network of 27 depots, Kitwave is able to support delivery throughout the UK to a diverse customer base, which includes independent convenience retailers, leisure outlets, vending machine operators, foodservice providers and other wholesalers, as well as leading national retailers. Kitwave initially built itself up organically, but as the business expanded it began to acquire smaller, predominantly family-owned, complementary businesses in the fragmented UK grocery and foodservice wholesale market.
The company has only been a listed entity since May 2021, debuting at around 160p on launch. The company built its business on delivery – accuracy and speediness – and should just be bubbling under the Top-Ten food wholesalers in the UK after results come out next week. Not quite a Costco or Bestway, Kitwave has developed on the back of delivery, as opposed to collection.
New to AIM, Kitwave listed at a difficult time for debutants, with many new companies getting their launch prices dragged down by the market disruptions caused by Coronavirus and then the War in Ukraine. However, Kitwave didn’t plunge the same way its peers did during the period. The company has paid its way, using free cashflow to build and develop new facilities and acquire small, family-run businesses in the fragmenting wholesaling market, where the difference between the top tier and bottom-end of the market are poles apart.
There is a bit of debt in Kitwave’s business, around GBP40m on the books, which must be becoming more expensive, and market and economic risks will invariably affect the company’s businesses. But given the company deals in small, essential items – frozen pizza, chocolate, bananas – they will still find their way into shoppers’ baskets. The rise in fuel prices would have impacted margins in the last year, but with fuel prices coming down, that financial pressure should ease over the next year. The acquisition of WestCountry will start to contribute to the group’s earnings from this year.
There is a sense that newer investors might have missed the boat, but we believe that Kitwave has room to grow from here and remains is ‘one to watch’ in 2023.
