BULL POINTS:
■ Margins boosted by bulk buying
■ Fuel distribution helped by cold weather
■ Decent dividend yield
BEAR POINTS:
■ Acquisition risk
■ Volatile demand in grocery distribution
NWF is very much a solid 'old economy' company. Its distribution businesses operate in three areas: providing feeds to the farming industry, fuel to domestic and commercial customers and warehousing for the food retail industry. And management's proactive approach means NWF is on course for reporting its seventh consecutive set of results where figures are in line with, or ahead of, the City's expectations; a confluence of positive factors should produce a record full-year performance in 2010-11.
| IC TIP RATING | |
|---|---|
| Tip style | Growth |
| Risk rating | Low |
| Timescale | Long term |
In particular, two of NWF's divisions have been performing strongly. The feeds business has benefited from higher commodity prices and more market share in sales direct to farmers, while the fuels business gained from the cold snap in the winter.
The hike in commodity prices has allowed NWF to raise its feed selling prices in 10 of the past 11 months, but the company's policy of buying in bulk in advance has allowed it to boost its profits in the short term. It has also increased the amount of feed it sells directly to farmers, which produces better profit margins. NWF sells to one in seven of the UK's dairy farmers, who account for three-quarters of the division's sales. NWF's bosses acknowledge that the exceptional performance in feeds will add £1m to sales in the current financial year; and while this may not be repeated in 2011-12, they are confident of continuing to gain market share.
| ORD PRICE: | 117p | MARKET VALUE: | £55m | |
| TOUCH: | 113-117p | 12-MONTH HIGH/LOW: | 123p | 84p |
| DIVIDEND YIELD: | 4.1% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 51p | NET DEBT: | 72% | |
| Year to 31 May | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 361 | 4.2 | 6.0 | 3.9 |
| 2009 | 381 | 6.2 | 3.0 | 4.1 |
| 2010 | 380 | 7.1 | 10.4 | 4.3 |
| 2011* | 500 | 8.3 | 12.6 | 4.5 |
| 2012* | 540 | 8.2 | 12.6 | 4.7 |
| % change | +8 | -1 | - | +4 |
Normal market size: 800 Market makers: 5 Beta: 0.5 *WH Ireland estimates (profits and earnings not comparable with historic figures) | ||||
In fuels, NWF benefited from the cold weather in December, when it ramped up deliveries to take advantage of strong demand. This has been partly offset by April's mild weather, but the division is still expected to produce a strong full-year performance. This should be boosted in the coming year by the inclusion of the Evesons acquisition, which adds four fuel depots to NWF's existing 14. Integration of this bolt-on acquisition should be relatively smooth and management is on the look out for further acquisitions to boost the geographic spread of fuels distribution. True, acquiring extra businesses and depots brings some integration risks, but in fuels' distribution, hopefully, not too much - it is largely a matter of scaling up the business and gaining efficiencies. In Feeds and Foods, organic growth is more likely.
NWF's food warehousing and distribution business, which primarily serves supermarket operators, has had a mixed time as demand has proved volatile, with supermarkets chopping and changing their demands due to fast-moving promotions. This has posed challenges for NWF, with volumes leaving its warehouses varying significantly from day to day. Management is in the process of introducing a pricing structure to better reflect this volatility, which should improve performance during the coming year; indeed, the second-half performance has already shown some improvement.
