Free share tips posted weekly! This week’s free tip is NWF Group. Final results from NWF Group, a specialist distributor of fuel, food and feed across the UK, were impressive. Performance was ahead of market expectations set before the pandemic but the news does not seem to have grabbed the attention of potential investors yet. The figures, covering the year to 31 May 2021, represented the company’s second highest profit performance on record. Throughout the Covid-related disruption since March 2020 all divisions have remained open and operational as they provide essential services. Government support has not been used and no staff furloughed. Looking ahead, very little growth in profit is currently forecast for this year or next and we believe that there is scope for the numbers pencilled in to be too pessimistic, particularly if acquisitions are made.
In the year ended 31 March 2021 revenue slipped to £675.6m (2020: £687.5m) and headline profit before taxation was £11.9m (2020: £13.2m). Fully diluted headline earnings per share were 20.4p versus 21.3p in the previous year. The balance sheet is in good shape with net debt at 0.3x headline EBITDA. Net debt was £5.7m excluding IFRS 16 lease liabilities (2020: £12.3m). A final dividend of 6.2p per share will be paid to shareholders on 10 December (2020: 5.9p) giving a total dividend of 7.2p per share (2020: 6.9p), a 4.3% increase on the prior year. This means that the total dividend has been increased for a tenth consecutive year.
There was outperformance in Fuels with strong heating oil demand supported by a cold winter and an increase in home working during the pandemic, which meant that headline operating profit was £9.3m (2020: £11.0m). In Food, headline operating profit was £1.9m (2020: £1.4m). There was good recovery in the second half after volatile trading conditions in the first half due to Brexit and pandemic buying patterns. Feeds delivered headline operating profit of £1.7m (2020: £1.9m) as it continued to support farming customers across the country with nutritional advice and prompt deliveries. Performance in the year was impacted by commodity price increases in key winter months and a cyber incident.
Performance to date in the current financial year has been in line with expectations and this creates a solid platform to build upon. The shares trade on a modest multiple of both historic and prospective earnings and given the conservative level of net debt a higher rating would not be undeserved. The company continues to consider acquisition opportunities and has a track record of acquiring and integrating businesses. Any announcement on this front, or in due course news that trading has been ahead of expectations, could be the catalyst for the share price to move significantly higher. We rate the shares as a BUY.
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