NWF navigates a volatile price environment

Steady as she goes for NWF Group (NWF), the Cheshire-based food, feed, and fuel distributor. All three business segments traded ahead of management expectations for the half-year, giving rise to a 44 per cent increase in group profits to £6.2mn once exceptional items, amortisation, and pension costs were excluded.

The top-line benefitted from higher commodity prices in fuels and feeds. Unfortunately, there were increased working capital demands in response to the increase in commodity costs and haulage prices, along with supply constraints in the fuel market. Domestic heating oil volumes were down by a fifth due to mild autumn weather and consumer resistance in the face of rising household bills. The unseasonably warm weather also resulted in good grazing conditions for livestock. This constricted volumes in the group’s feeds business, but the increase in soft commodity prices boosted revenue to the tune of 22.6 per cent.

Net debt, comprised entirely of lease liabilities, fell by 18 per cent year-on-year, while receivables and trade payables increased by 28 per cent and 21 per cent, respectively. However, the fact that both measures decreased as a proportion of sales suggests there is no undue pressure on payment schedules, although the net cash outflow more than doubled from the 2021 half-year.

After closing out the period with £1.2mn in net cash once lease liabilities are excluded, NWF completed the £10mn acquisition of Sweetfuels Ltd, a fuel distributor predominantly focussed on the Cotswolds. The group’s banking facilities are on track for an October refinancing, by which time the UK base rate is likely to have plateaued.

A forward rating of 12 times forecast earnings isn’t extravagant but it simply reflects run-of-the-mill growth prospects. The prevailing volatility in underlying commodity pricing means it is difficult to assess trading prospects, however, so we remain neutral. Hold.

Last IC view: Hold, 219p, 01 Feb 2022