NWF trading to expectations, but analyst highlights dividend yield
First half results at Nantwich-based food, feed and fuel distributor, NWF Group, are expected to be in line with forecasts, it said in a trading update for the period ended November 30, 2023, today.
Group overall profitability for the first half was, as expected, behind the prior year as conditions in the Fuels and Feeds markets continue to normalise, following an extended period of volatile underlying commodity prices which had contributed to elevated returns.
The Food business, in part offsetting the less supportive market conditions in Feeds and Fuels, delivered a strong performance in the Period, with trading ahead of the prior year and continued growth momentum providing opportunity for further expansion.
IN Fuels, volumes in the period were ahead of the prior year, but margins reflect the expected normalisation from the abnormally elevated level experienced in the prior year. This performance is aligned to the stable supply conditions, competitive pricing of diesel and gas oil, and lower demand for heating oil reflecting the mild autumn weather.
The price of Brent crude oil started the period at $74 per barrel, peaked at $97 per barrel and finished the period at $82 per barrel as the business enters its busier winter months. Having acquired Geoff Boorman Fuels in the period, which expanded the division’s coverage and customer base in the South East, the board continues to consider acquisition opportunities for Fuels in line with the stated strategy and supported by a robust financial position.
The Feeds business traded strongly and ahead of the prior year. Storage volumes reached a peak of just over 141,000 pallet spaces (capacity 135,000 pallet spaces) which required the business to continue utilising overflow storage facilities efficiently, as planned. Outload and associated backhaul activity were higher than the prior year reflecting the high storage levels.
To support the continued high level of customer demand for its services and drive further growth in the division, the group is well advanced with plans to establish a new warehouse, aimed at replicating the success of its Crewe warehouse which was opened in 2020.
Feeds volumes were behind the prior year, reflecting a reduction in the overall market with high levels of forage available to farmers following warm and wet weather throughout the summer and autumn. A lower milk price than the prior year and reduced volatility in raw material prices has resulted in the expected normalisation of margins following the significant outperformance in the prior year.
The group said results for the first half are anticipated to be in line with the board’s expectations. Analyst consensus is for headline profit before tax of £14.4m, compared with £19.6m the previous year.
With the winter months to come, which are typically more material to the group’s performance, the board’s expectations for the full year are unchanged, with a more significant second half weighting than last year.
Chief executive designate, Chris Belsham, said: “It has been a more challenging first half than in recent years as market pricing normalised following a lengthy period of beneficial volatile conditions for Fuels and Feeds. In contrast, the strong performance of Food is encouraging us to advance our plans for a third warehouse to meet the growing customer demand for our first class services and drive further growth in the division.
“With the winter months to come, which are more material to the group’s performance, our expectations for the full year are unchanged.”
NWF expects to announce its results for the half year ended November 30, 2023 in late January.
Adrian Kearsey, analyst with investment bank Panmure Gordon, reiterated his ‘Buy’ call on NWF shares after this morning’s update.
He said: “As expected, the Fuel and Feed divisions are trading behind the prior year as market conditions normalise whilst the Food division is trading strongly. Ahead of the important winter months, where most of the profits are generated, we are leaving our full year profit forecasts unchanged.”
He said the dividend yield is attractive: “Over the last seven years, NWF’s three divisions have delivered an average free cash flow of £10.4m. This average represents an 8.5% FCF yield. Moreover, across this period cash generation has been trending higher.
“This cash generation, combined with the strong balance sheet, underpins the dividend pay out. Crucially, the pay out has increased every year for 11 years, delivering a 5.1% CAGR over the period. Therefore, we believe the four per cent prospective dividend yield underpins the shares and we reiterate our positive stance on the stock.”
