NWF Group: Q1 2017 Trading Update
UK specialist agricultural and distribution business, NWF Group (LON:NWF), has released a trading update for Q1 (June - August), ahead of its AGM later today.
• Feeds: Volumes impacted by low milk prices; investment in additional capacity in Cumbria and Cheshire on track
• Food: Storage and activity levels remain strong; Continuing to use outside storage to deal with higher than anticipated storage requirements
• Fuels: Impacted by lower demand for heating oil over warm summer; overall volumes strong but squeezed margins
VSA Comment
Despite weakness in Feeds and Fuels in Q1, traditionally NWF’s quietest trading period, NWF’s outlook for the full year remains in line with Board expectations. As usual for the past few years, its Food division remains the steady performer.
Back in June we highlighted some early signs of stabilisation in the global dairy market that we believed might start to feed through into UK dairy prices over the following months. Although farmer-processor contracted milk prices have not increased as fast as some farmers would like, UK spot prices (a very small proportion of the market) are currently being quoted at more than 30ppl and a number of ‘B contracts’ (i.e. those dealing with excess milk from farmers) are now set above the respective ‘A contracts’. Both of these factors point towards steadily increasing contracted prices for farmers in the coming months.
If milk prices continue to increase, as we believe they will do, UK farmers will look to increase milk production and thus require additional volumes of animal feed. Anecdotal reports suggest this is already happening (DEFRA data currently only available to July). It is worth noting that although herd expansion is of course part of this story, a more immediate impact to feed volumes could come through increased feed volumes for existing cattle, as farmers look to increase yields. This would result in a quicker turn-around for the bulk feed sector than perhaps many imagine may be possible.
This would be good news for NWF and the other bulk feed suppliers, such as Wynnstay (LON:WYN) and ForFarmers (FFARM NA) in the short-tern term. It is also worth noting that these bigger producers have been gaining market share during the downturn at the expense of some of the smaller players, therefore any increase will likely benefit these disproportionally.
Current FY 2017 consensus is for revenues of £489.5m, +5.1% YoY, with an adjusted PBT of £7.9m, -4.8% YoY.