NWF LON:NWF, the food, animal feed and fuel distribution company, may be one of the winners from the current energy and cost-of living crisis.
The AIM-listed Cheshire-based company announced its results for the year ending 31st May 2022 today, and unsurprisingly – given the current market backdrop – the distribution company’s chief executive Richard Whiting was delighted, commenting in the results release this morning (2nd August): “NWF has delivered a record set of results, significantly ahead of the market expectations at the start of our financial year […] responding effectively to unprecedented volatility in cost inputs and issues of supply availability.”
The company reported revenues of GBP 878.6m, up 30% on 2021’s revenue of GBP 675.6m. This equated to operating profits of GBP 21.8m, up 69% on 2021. The company announced total dividends per share of 7.5p, up from 7.2p in 2021.
NWF is not new to the logistics game. Set up in 1871, the company was trucking food and fuel around the country when the primary method of transport was horse and cart, and the company has seen more than one crisis in its history, so lives up to its motto: “Resilience & Delivery.”
Whiting said “we’re not a complex business – we ship basic products: food, fuel and feed. We have a stable and robust client base which is profitable and we can develop.”
The company listed on AIM on 2nd June 2000.
Akhil Patel, covers NWF as an analyst for broker, Shore Capital. He commented “the group has delivered record results mostly driven by significant one-off gains in the fuels division given the short-term pricing volatility and constrained UK fuel market following the war in Ukraine.”
Black swan
Adrian Kearsey, an analyst for Panmure Gordon, also covering NWF agreed. “NWF’s fuels division enjoyed another Black Swan event in 2022. The group’s national distribution network has enabled the division to navigate fuel supply chain issues by moving volume around the various depots.”
Kearsey continued “…Meanwhile, commercial customers have been willing to accept higher prices for certainty of supply, further enhancing the [fuel] profit per litre – up to 2.6p against 1.4p last year. This resulted in divisional profits jumping from GBP 9.3m in FY21 to GBP 17.2m in FY22. Over recent weeks supply chains have settled, and we anticipate that the profit per litre will normalise in FY23 to around 1.2p.”
NWF has three divisions: Food, Fuels and Feed and operates nationally from headquarters in Wardle.
Fuelling the recovery
NWF Fuels is the third largest distributor of fuel oil and fuel cards delivering over 695 million litres across the UK to 127,000 customers in 2020. With 127,000 customers being supplied across 25 fuel depots, the Fuels Division operates in markets that are large and robust and, as a business, it has consistently proved it can effectively manage the volatility in oil prices. The industry remains highly fragmented, with many small operators, which NWF continues to believe provides an opportunity to further increase market share.
Prior to the eruption of conflict in Ukraine, the Fuel Division was already performing strongly because of a commercial focus on gas oil and solid demand for heating oil across all depots as a result of a cold winter and increased home working during lockdowns by domestic customers. The extended winter period supported margins stronger than anticipated which more than offset any lower commercial activity from the impact of Covid-19.
In the fuel supply crisis in 2021 NWF’s decentralised depot management allowed it to efficiently truck fuel around the country.
Kearsey said: “The model is highly de-centralised, with each depot manager responsible for their own P&L. This approach ensures high levels of service and responsiveness to the everchanging trading environment. That said, during periods of supply chain disruption, the network works together to ensure client demand is satisfied.”
The Fuels Division contributed 69% of group revenue and 77% of group EBIT over a three-year average. Whiting said that the UK fuel market was very fragmented and that NWF has the opportunity to consolidate this and grow its distribution network through acquisition.
“We have 25 depots and ship 700 million litres of fuel. We make a few pence on each litre whether the oil price is USD 150 or USD 50 a barrel. The key is the network – if as a client you run out of fuel, we can get it to you the same day – and that’s great for customer retention and customer acquisition.
“Having a larger distribution network allows us to bring products closer to our customers”
Feeding the recovery
NWF has expanded its Food Division, it recently completed a new 240,000ft² warehouse in Crewe, which it brought online last year. The new warehouse provides storage at an average of over 26,000 pallets out of a capacity of 35,000 spaces was 90% utilised at year end. The Crewe operation focuses on full pallet, full load activities with more complex added value operations being completed in the Wardle facility.
NWF operates its food distribution business through the brand, Boughey Distribution, and is a leading consolidator of ambient grocery products to UK supermarkets with over one million ft² of warehousing and significant distribution assets. The business operates in a competitive supply chain and needs to continually demonstrate the value and service that it provides to food manufacturers and importers. The business has a leading position in consolidating ambient grocery products in the North West, with high service levels, industry leading systems and a strong operating performance being the key components of its customer proposition.
Patel said: “the Food Distribution business has offered a 47% uptick in EBIT to GBP 2.8m, primarily driven by significant operational efficiency reforms despite outloads remaining broadly flat year-on-year.
“NWF has efficiently and effectively utilised its warehouse space and improved operational efficiency – getting stock closer to its customers. Unlike some other logistics companies, NWF has retained its drivers and warehouse operators through the pandemic, and successfully passed increased input costs onto its customers.”
Feeding the food
NWF also feeds the food, developing its Feeds Division into a leading national supplier of ruminant animal feed to 4,550 customers in the UK, feeding one in six dairy cows in Britain. NWF provides nutritional advice to farmers across the country with over 60 trained nutritional advisors analysing forage and farmers’ objectives to deliver feed to optimise performance. Feed is then produced from mills across the UK and delivered directly to farmers with the majority of the business being dairy, but also supporting beef and sheep farmers.
The division saw EBIT increase by 6% year-on-year despite volumes falling. Kearsey said: “After a poor first half where the Feeds Division posted a loss of GBP 0.4m against profit of GBP 0.6m from 1h21 the division managed to deliver an improved performance in the second half. This resulted in divisional profits of GBP 1.8m.” The Feed Division was much more successful at passing on price increases to customers in the second half of the year than at the start.
The Feeds Division provides fodder for sheep and cows and consultancy services on livestock nutrition, the latter of which Whiting said was part of its growth strategy in the feeds market. The company said feed output increased from 50,000 to 580,000 tonnes per annum in the last ten years. The feed mill at Wardle, the largest specialist ruminant feed mill in the UK, was opened in 1980, and produced its one millionth tonne in March 1998. The two millionth tonne was produced in July 2003, three millionth tonne in October 2005 and the four millionth tonne was produced in January 2008.
Growing from contraction
The company opened trading today at 232p and was trading mid-morning at 218.1p. NWF has a market capitalisation of GBP 122m, and has offered a year-to-date return of 2.34% and a one-year return of 3.24%. The 52-week price swung between 182.50p and 240.00p.
Shore Capital maintains its ‘Hold’ rating for NWF. It sees Fuel as a driver for further growth, especially given the current climate. The broker highlights that in the Food Division the warehouses remain broadly full at around 93% capacity and the Feed Division continues to prosper.
Patel said: “At the moment we see NWF’s valuation as fair, but the management team is strong, and the company is in a good position following investment.
“Given the fragmented size of the market and few competing bidders in the market, NWF is well placed to complete further deals within the Fuels market,” said Kearsey.
“After pausing discussions during the pandemic, NWF has confirmed that ‘acquisition activity has recommenced’. Indeed, over recent months, it appears that the pipeline of opportunities has been growing. Crucially, management’s track record in executing and integrating Fuel acquisitions has been good.”
Panmure has a ‘Buy’ recommendation for NWF and a target price of 240p.
The biggest challenges facing NWF are supply chain issues said Whiting. The ability to transfer supplies between hubs is critical, and “this is why it’s important to develop our network,” he said.
Patel said: “They are a fantastic business, stable and secure – but an investment for people looking to buy and hold and collect a regular dividend.”
“My concerns are that they are highlighting growth by acquisition. Their growth is coming from buying ever more fuel depots, not organically. It is a finite market – as are food and fuels – and there are a number of other firms in the same space. With the energy transition, they might see a longer-term drop-off in fuel sales, their principal source of revenues. They’re a steady investment, but won’t offer eye-watering growth. They’ve generated a lot of cash, which some investors hoped they’d put into dividends, but seem to be keeping their powder dry for potential acquisitions.”
