In this magazine's recent Sector Focus looking at the dairy industry, we pointed out how changes in the milk market might benefit a number of UK producers. One company that stands to gain is Aim-traded agri-business NWF Group (NWF), which feeds one in six dairy cows across Britain, and its shares' low PE rating and attractive yield makes NWF a great way to play the industry's long-term trends.
- Growth prospects in dairy
- Diversified business
- Acquisitions
- Low rating
- Well-covered generous yield
- Volatile markets
- Low growth
There's more to NWF than just its feeds division. It's the third-largest oil fuel distributor in the UK, and has a food business which warehouses and distributes ambient groceries to retailers. The group is growing organically, but has a balance sheet strong enough to support earnings-enhancing acquisitions. And while end markets can be volatile, last year canny management action meant it delivered impressively solid results in what was an extremely challenging period.
The feeds division manufactures and sells specialised food and nutrients for cattle and sheep and offers technical services and expert nutritional advice, primarily to dairy farmers, to help them get the most out of their livestock. Therefore, NWF is well-placed to benefit from rising dairy consumption across Asia and the Middle East. And when milk quotas in the EU are abandoned next spring and production ramps up as processors gear up to boost exports, dairy farming will need to become much more efficient and professional to meet demand. Using the kinds of products and services NWF offers will be part of that. Accordingly, expanding and diversifying value-added products in the ruminant market is a key area of growth and investment for NWF. This should be bolstered by acquisitions - last year, it acquired SC Feeds which helped the division increase volumes in what could otherwise have been a washout year.
| NWF GROUP (NWF) | ||||
|---|---|---|---|---|
| ORD PRICE: | 144p | MARKET VALUE: | £69m | |
| TOUCH: | 142-147p | 12-MONTH HIGH: | 162p | LOW: 119p |
| FORWARD DIVIDEND YIELD: | 4% | FORWARD PE RATIO: | 11 | |
| NET ASSET VALUE: | 69p* | NET DEBT: | 35% | |
| Year to 31 May | Turnover (£m) | Pre-tax profit (£m)** | Earnings per share (p)** | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 540.2 | 5.1 | 8.0 | 4.5 |
| 2013 | 545.8 | 8.8 | 13.6 | 4.8 |
| 2014 | 537.7 | 7.7 | 12.4 | 5.1 |
| 2015** | 534.7 | 8.2 | 13.1 | 5.5 |
| 2016** | 537.8 | 8.6 | 13.7 | 5.8 |
| % change | +1 | +5 | +5 | +5 |
Normal market size: 750 Market makers: 5 Beta: 0.24 *Includes intangible assets of £16.3m, or 34p a share **Peel Hunt forecasts, adjusted PTP and EPS numbers | ||||
Indeed, the last financial year might have been disastrous, had it not been for decisive management actions across all divisions. Not only was the company up against an extremely strong performance in the feeds division, thanks to favourable weather and high commodity prices, but a surplus of good-quality silage meant the market for ruminant feed was down 4.7 per cent.
Meanwhile, the warm summer weather depressed demand for oil and the food retail sector underwent its well-documented decline. But, anticipating these headwinds, management made efficiencies savings in the foods segment, centralising operations to a single facility and securing long-term contracts with customers, which led to a 66 per cent profit rise, despite flat revenue. What's more, there are further efficiency gains to be had here. The fuel division is benefiting from introducing new product lines, helping to offset weak demand for oil. This year NWF will invest in new depots and possibly bolt-on acquisitions.
