NWF H1 Trading Update
UK specialist agricultural and distribution business NWF Group (LON:NWF) has announced a trading update for the six months ended 30 November 2016 (H1 2017).
Trading was lower YoY in H1 due to a weaker Q1
However, trading has increased in recent months and NWF remains on track to reach FY expectations for performance and net debt
VSA Comment
DEFRA data shows that overall UK ruminant feed production fell 3.0% YoY for the first five months of NWF’s H1 period (data not yet available for November; Q1 period was -4.7% YoY) as demand was impacted by lower milk prices and a smaller UK herd size.
Despite this overall market decline, NWF reports that for the first five months of its H1, its animal feed production actually increased 1.5% YoY. This reflects the trend that we have been discussing throughout the milk price downturn, whereby the larger feed producers, such as NWF, have been gaining market share at the expense of the smaller players.
Looking forward, UK milk prices have been steadily increasing since the middle of the year. There is now evidence that this is being translated into increased animal feed consumption.
Total UK ruminant feed production fell just 0.5% in October (last data available) and although this was against our expectations for an increase YoY, this is much better than the 5%+ monthly falls we saw earlier in the year. We believe the UK market will move into monthly YoY increases in the near-term, which will translate into increased sales volumes for NWF in H2 and into its FY 2018.
In terms of its input commodities, a typical basket used for compound feed has reportedly increased c20% since March. This has been reflected in increased compound feed costs for UK farmers. NWF reports that it has increased its prices twice during the year, in-line with competitors, so margins should be maintained.
NWF’s food division continues its solid performance with its Wardle warehouse fully utilised and high service levels maintained.
NWF’s fuel supply business was impacted by warm weather and lower demand for heating oil through summer and early autumn but reports a strong performance in November. FY performance in this division will depend on temperatures in the remaining winter months and resulting demand for heating oil.
In general, the most important factor for all of the UK agricultural input companies is whether winter extends into March, a factor which has historically provided the strongest boost to animal feed purchases and heating oil demand.
NWF remains trading in-line with market expectations. Current FY 2017 (Y/E May 2017) FactSet consensus is for revenues of £487.3m, +4.6% YoY, with an adjusted PBT of £8.3m, flat YoY.