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NWF Group: A steady growth and income combo

The AIM-listed group has raised its dividend in nine of the past ten years
NWF supplies feed to dairy herds

NWF Group PLC’s (LON:NWF) business plan for the next few years is to consolidate its feeds and fuel operations and optimise food distribution.

And there’s a pretty good chance that’s exactly what will happen as stability and reliability have been watchwords for NWF over the past decade.

WATCH: Extended winter gives NWF Group plc a boost as it delivers record results

The AIM-listed group has raised its dividend in nine of the past ten years, while profits and revenues have risen steadily (yes).

In the year just ended, NWF’s fuels division had the kicker of a boost from the Beast from the East, which meant a record year for profits.

Fuels is a ferociously competitive business. NWF delivered 543mln litres of heating, fuel and various other types of oil over the past 12 months but its margin on each of those deliveries was just 1.3p per litre.

That was a good outcome. In a warm winter, that margin can drop to 0.8p, while around 0.9p is the mean average.

Throughout March, NWF worked 24/7 and provided its customers with runout kits that contained enough fuel to keep them going for ten days.

Oil consolidation

Some 1.4mln people in the UK are dependent on delivered oil and it’s not a business that is going to disappear, argues Richard Whiting, chief executive.

The majority of customers are businesses – small hauliers, schools, construction companies and such like - though there is also a fuel card business that supplies 50mln litres each year.

Fuel profits in the year to May rose 53% to £6.9mln.

Sales were £401mln, which includes duty, but adding a bit to margin on every sale would make a material difference to profits says Whiting, though the return on capital is high already, he adds.

One obvious way to add margin is to become larger and more efficient and consolidation will help achieve this.

Currently, NWF is number three in the UK and it only has a 2% share.

FTSE 100-member DCC is the market leader, but much of the competition comes from tanker owner-operators and they are potentially open to offers, believes Whiting.

Milk prices 

Feed is a similar story. NWF is one of 1 suppliers in the UK and Whiting says it is frustrating when one of its trucks goes past someone else’s mill en route to a customer.

Milk prices are crucial to this business, he adds.

Some three-quarters of sales are to dairy farmers in the west of the country. Beef and sheep make up the rest.

When milk prices are high, farmers are keen to boost yields and produce as much as possible and that means strong demand for feed.

As an illustration, farm gate prices rose to 28p a litre last year, which fed through into a doubling of profits to £3mln from £1.5mln in feed. 

Hot weather and droughts are not that significant on feed demand, Whiting adds, though the lack of sileage caused by the dry spell has given the market a lift this summer.

Food optimisation

Food distribution is the third leg of the business. NWF owns a 55-acre warehouse in the North-West and is responsible for the storage and distribution of a range of well-known brands throughout the region.

It works for the food manufacturers such as coffee group Lavazza, Typhoo tea and Popchips.

It’s a warehouse and logistics business, says Whiting.

The end of a large contract, integrating replacements and their products and adding new staff meant profits dropped in 2017/18.

Everything is bedding down now says Whiting and the aim is to get the site working as efficiently as possible.

Record profits

NWF produced a record adjusted profit of £10.2mln in the year to May on revenues of £611mln, helped by the fuels and feed improvement.

Whether that is repeatable remains to be seen.

Another freezing winter would help fuel again, but much will depend on the scale of the recovery in food and the impact of the prolonged drought on staples such as milk.

House broker Peel Hunt is going for £9.1mln as the broker has assumed a normal weather year.

At 181.5p currently, the shares yield 3.5% after the latest 5% annual increase while the balance sheet was boosted by strong cash inflows over the year.

One criticism possibly is that growth is too steady, but it’s horses for courses.

NWF is not a high-risk biotech/tech start-up but a steady, cash generating, dividend growing business that is very comfortable in its skin.

Just don’t expect too many fireworks.


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NWF Group plc Timeline

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