Delivering on strategy
N.W.F Group, (NWF) stands out from its listed peers because of its national presence as a manufacturer and supplier of ruminant feeds, which gives it economies of scale. Shares are trading at a discount to peers, but there are concers regarding how the mild winter may affect profits.
Record H114 results
H114 revenues rose by 1% year-on-year to £259.1m, reflecting a 5% growth in Feed volumes, driven by sales direct to farmers, and a 2% rise in Fuel volumes. Operating profit grew by 29% to £3.6m. The Fuel division benefitted from a greater proportion of higher-margin gas oil sales. The Food division benefitted from higher average storage levels and a greater number of outbound loads.
SC Feeds acquisition in line with strategy
In December NWF acquired SC Feeds, a manufacturer and supplier of animal feed, making the group the second largest in the UK. Before the acquisition, NWF’s main feed mill in Cheshire was operating at capacity, so the transaction enables the group to increase the volumes of feed supplied without recourse to third-party manufacturing. The group’s stated strategy is to grow its agricultural activities to take advantage of rising global demand for dairy products.
Performance in line with expectations
FY13 results benefitted from extended cold weather in the spring, which raised demand for both sheep feed and heating oil, and from one-off gains from rising commodity prices. Given the mild winter so far and easing commodity prices, these factors are unlikely to be repeated in FY14, resulting in an anticipated reduction in reported profitability. However, the underlying profitability continues to improve, with market share gains in Feeds, improved efficiency of the Food division as it operates from a single site and good progress being made with the integration of SC Feeds. Management’s expectations of full-year performance remain unchanged, despite the continued mild weather, indicating that adjustments to consensus after the results are likely to be fairly limited.
Valuation: Trading at a discount to peers
NWF’s shares are trading at a discount to the average for the support services sector (year 1 P/E 14.7x, year 2 P/E 13.2x) as investors continue to be concerned about the effect of weather on profits.
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