I like what I’m seeing from specialist fuels, food and animal feeds distributor NWF Group (LSE: NWF). There’s a lot to be cheerful about, including a modest valuation, a decent dividend yield, and a record of dividend growth stretching back around a decade.
A long history and growth opportunities
The company can trace its origins to 1871, which makes me believe it’s found something to earn its living from with staying power. And it’s been listed on the FTSE AIM market since 1995. I’ve had a scoot around the firm’s website and listened to the chief executive being interviewed. Result is, I’ve come away with the feeling that the three divisions have traction in their markets, and the whole enterprise seems well managed. The common thread linking each division is the firm stores then delivers stuff with lorries, which means it can apply its expertise across each of its three markets.
The directors are focused on building up the business both organically and via selective acquisitions. In the fuel sector, for example, the company sees a fragmented market, which it’s working to consolidate with an acquisition and integration policy. Then in the animal feeds division, NWF does more than just transport the feeds to farms and customers around the country. It also mills and manufactures the product and works with its customers to offer advice. I think a distribution-plus-benefits service like that will make the company an important partner to those purchasing the products, which should work to ensure solid repeat custom, adding to NWF’s defensive credentials.
Encouraging results
I find today’s half-year results report encouraging. Revenue rose 11.7% compared to the equivalent period the previous year and adjusted, diluted earnings per share moved 5.6% higher. The net debt figure fell more than 9.2% to £14.8m, suggesting strong real cash earnings over the period. The interim dividend held firm, which is normal because the company usually increases the final dividend at the time of the full-year results.
The revenue growth came from “increased activity in Food and Feeds and higher commodity prices.” Profits rose in the food division because of pre-planned efficiency improvements, and the firm acquired Midland Fuel Oil Supplies within its fuel division in December.
Meanwhile, the headline operating profit in Fuels slipped a bit because the warm summer reduced demand for heating oil. Operating profit rose a bit in Food because of a strong recovery “as planned,” and due to new business won. In Feeds, operating profit shot up as much as 75% because of strong demand in the summer “when grazing conditions were poor,” and because of the investment the firm made in its Feed operations in prior years.
A pleasing long-term trend
So, it’s up a bit and down a bit for profits in individual accounting periods. But the long-term trend appears to be up, driven by the firm’s efforts to grow the business and to plough money back into developing it.
I see the stock as a tempting long-term ‘hold’ and, at today’s share price close to 175p, the forward-looking earnings multiple for the trading year to May 2020 is just below 12, and the anticipated dividend yield is a shade below 4%.