Kitwave delivers tasty growth

It's an end of an era for Aim-listed food and drink wholesaler Kitwave (KITW) as chief executive and co-founder Paul Young is set to retire next month, to be replaced by current chief operating officer Ben Maxted. Young's final results at the helm have demonstrated further progress for the business, with a combination of its buy-and-build acquisition strategy and organic growth delivering a surge in annual revenue and profits as well as a chunky increase in the dividend. 

The £28mn WestCountry purchase (which completed in December 2022) has been successfully integrated, and this drove the 44 per cent rise in foodservice revenue. This enlarged high-margin division was a key factor behind the 150-basis point increase in overall gross margin to 21.9 per cent.  

A bigger footprint in the South West of England will be supported by the construction of a new 80,000 square foot distribution centre, which is set to complete this autumn.

Meanwhile, after the year-end, Kitwave completed the small bolt-on purchase of composite drinks wholesaler Wilds of Oldham which will bring in around £10m of annual revenue. Thirteen businesses have been acquired and integrated since 2011, and the company clearly isn't resting on its laurels. 

Organic growth was also healthy, with overall like-for-like sales up 13 per cent as Kitwave benefited from an increase in case volumes as well as higher prices. Combined revenue at the ambient and frozen and chilled divisions rose 12 per cent. 

Leverage sat at 1.4 times at the year end, a manageable position and well under the company's 2.5 times limit. Cash generation was up 14 per cent to over £30mn in the year, while the company has around £40mn of headroom on its banking facilities which limits any balance sheet concerns. 

The shares trade at 10 times forward earnings, an undemanding rating given the performance and outlook. We remain bullish. Buy. 

Last IC view: Buy, 325p, 04 Jul 2023