NWF LON:NWF, the food, animal feed and fuel distribution company reported “record first half results [to 30th November 2022]” with “[…] revenues and headline operating profit significantly ahead of the prior year […] expectations.”
The company’s shares opened trading today (31st January) at 238.4p and has offered a -6.5% year-to-date return, a 15% one-year return with shares trading in the range of 185p to 288p over a 52-week period. The company has a market capitalisation of GBP113.6m.
As reported, NWF was already sounding confident at the end of 2022, as traditionally the winter is the best trading period and most critical in terms of revenue for the company, and having ridden issues with supply chain in both foods and fuels due to the War in Ukraine, the company said: “conditions [had] become more normalised over the summer period, with full availability of all fuel types across the country.”
The spike in prices for both fuel and food had started to normalise (at least from a wholesale perspective) allowing for “robust” margins, “with storage capacity almost fully utilised.”
The company reported 1H22 revenue of GBP541.8m, up 34% from GBP402.6m for 1H21 and profit before tax was also up by 44.2% to GBP6.2m, giving the company an operating profit of GBP6.7m compared to GBP3.8m for the corresponding period in 2021. NWF also shaved a bit off its net debt, which was down 17.6% period-to-period to GBP30m.
Pleasant surprise
In many ways, NWF’s results were a surprise to both the market and management with headline operating profit significantly ahead of the prior year and the company’s own expectations, and this was a result of all its divisions trading ahead of expectations.
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The company has always has quite an acquisitive nature and has throughout its history grown its market share by buying smaller or distressed distributors. In December NWF completed the acquisition of Oxfordshire-based fuel distributor Sweetfuels, for around GBP10m. Sweetfuels was shipping some 20 million litres a year, and its addition brought NWF’s twenty-sixth depot online, with promises of more to come as management sees opportunity in the UK’s fragmented fuel-distribution network.
National network
Sweetfuels was a fuel distributor in Oxfordshire, Gloucestershire, Berkshire and Wiltshire and NWF saw its addition as immediately revenue accretive. Richard Whiting, NWF’s chief executive said at the time that the company has a “strong platform” for further growth, as it continues to leverage its expanding geographic footprint and targets further M&A activity. The Sweetfuels acquisition follows other buys in Cornwall (Consols Oils) and Somerset (Darch Oil) as Cheshire-based NWF expands from its northern England heartland.
The Fuels division reported a headline operating profit of GBP2.6m – down from GBP3.6m in 2021, but made up lost ground from initial supply constraints at the start of the year as demand for fuel picked up in autumn. The demand for fuel looks set to continue throughout the cold of winter.
In its Food division, profit was up to GBP2.1m, from GBP1.5m. Again, given the strategic role Ukraine holds in the global grains market, supply constraints have played into the pricing, which has been reflected in the retail sphere with record 13.3% UK food inflation, and warnings from the British Retail Consortium that 2023 would be a difficult year in terms of food pricing.
The biggest turnaround came in the Animal Feeds division with NWF swinging from a GBP0.4m loss in 2021 to a GBP2.1m profit in the current set of results. The company saw volumes come off a little in the period “as a result of good grazing conditions”, but this has been compensated for as farmers have been stocking up on winter feeds as the price of milk rises.
Clear investment strategy
Whiting said in a statement: “We have delivered a record first half with a good performance from all three divisions in spite of an uncertain economic outlook and inflationary pressures […] We have started the important winter period well and continue to focus on the long-term growth of the Group, with a clear investment strategy, which is supported by a strong financial position.”
Shore Capital, the broker, rates NWF as a ‘Hold’ at a price of 230p. Akhil Patel, an analyst for Shore Capital said: “At this moment, we see NWF’s valuation as fair at present (in line with its five-year average PER of c.12x). That said, we believe the company has a strong management team and is in a very good position following prior and continued investment across the business. We believe the company will continue to focus on its strategic development (i.e. acquisitions in fuels given its strong balance sheet/banking facilities and investing in its NWF Feed Academy), which will strongly position the group.”
As previously reported, through the Feed Academy, 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.
The AIM-listed company trades on a FY23F PER of 11.5x (falling to 10.7x), an EV/EBITDA ratio of 5.1x (falling to 4.8x) and a dividend yield of 3.3%.
Patel continued: “We estimate FY23F adjusted Profit Before Tax of GBP12.3m and adjusted diluted EPS of 20.1p, noting the recent acquisition of Sweetfuels has incrementally added GBP0.4m of adjusted operating profit in FY23F (+GBP1.4m incremental adjusted operating profit in FY24F).”
Positive performance
Deshe Analytics has NWF on a ‘Buy’ rating. The analyst said: “At a high level, the metrics from NWF’s 2Q22 financial report release were demonstrably positive. Their positive income, growth, and value factors indicate that it is likely to continue to produce impressive results for the foreseeable future, as well. We expect that this positive performance will continue in the coming months and anticipate that NWF will maintain good momentum even in a challenging environment. We gave NWF an 84 rating and a ‘Buy’ recommendation.”
NWF might not be the most exciting business in the market, but its role at the heart of the economy, shipping fuel, food and animal feed is essential to the proper-functioning of the country, and the products it transports are definitely in the ‘Needs’ category as opposed to ‘Wants’ category, something that will be critical especially as the UK faces an economic downturn.
