Wynnstay – resilience underrated

Agricultural products supplier and specialist retailer Wynnstay is a broad-based business whose resilience has come to the fore during this recession. Not that the market has cottoned on, since its lowly rated shares trade on single-figure price-to-earnings ratios and at a substantial discount to assets.

A proper, ‘grown-up’ business for uncertain times, Wynnstay’s origins lie in the formation of a farmers’ cooperative back in 1918 – following a number of mergers and amalgamations, the company eventually joined the OFEX trading facility in 1995 before floating on AIM in 2004.

With a sound five-year sales and profits growth track record, the company, with the help of key acquisitions (Welsh Feed Producers and Wilsons Pet Centres among them), has
played a role in consolidating the agricultural supplies sector while establishing specialist, and relatively recession-resistant, retail operations.

Today, its agricultural supply and retail operations span Wales, the Welsh border counties, the Midlands and Lancashire. Its diverse agricultural activities include the manufacture and supply of feeds for farm livestock, the supply of raw materials for feeds to farmers and the supply
of seeds, fertiliser and agro-chemicals for crop farmers, to whom it also provides grain-trading services. On the retail side, its country stores sell everything from pet and equine food to sporting goods and high-margin animal healthcare products, while the group also boasts an expanding chain of pet product superstores, which trades as ‘Just for Pets’.

Recent interim results to April were creditably robust and were achieved against a backdrop of volatile agricultural commodity prices. Sales moved, albeit marginally, in the right direction, to £117.7 million (2008: £116.5 million), with pre-tax profits putting on seven per cent at £3.16 million – the interim dividend was lifted ten per cent to 2.2p.

Seasoned CEO Ken Greetham, with more than 25 years’ experience in the agricultural supply sector, said the resilience of the numbers reflected the breadth of the agricultural supplies business, ‘which spans the whole marketplace from livestock feeds to seeds and fertiliser’.

So while lower like-for-like feed and fertiliser volumes were achieved, as price deflation caused farmers to delay spending in expectation of even lower prices, the company benefited from excellent performances within its seed and raw material trading businesses. Record seed sales were achieved in the spring market and its raw material trading arms, Glasson and Shropshire Grain, performed very well.

Significantly, Wynnstay managed to deliver like-for-like sales growth within its resilient Country Stores, where much of the spend is non-discretionary, acquisitions have been fully bedded in and there is scope for expansion.

Good like-for-like sales growth was similarly achieved within Just for Pets. A new store opened
near Derby has got off to an encouraging start and May witnessed the opening of a 14th store at Northampton, while number 15 should open before the end of 2009.

Though the agricultural sector is notoriously volatile, it is a market with good long-term growth drivers, underpinned by the growth in the global population. As Greetham argues, ‘worldwide food consumption has increased 300 per cent over the past 40 years and the population is forecast to grow to nine billion by 2050. That population will need feeding.’

Dietary trends, with emerging nations increasingly adopting a Westernised diet with higher meat content, should underpin demand for feed, while forecasts of reduced productivity within the market should underpin pricing for players such as Wynnstay.

For the year, a pullback in profits to £5 million on £218.6 million sales is predicted, ahead of a return to profits growth at £5.2 million by 2010. On those projections, the shares trade on undemanding forward multiples of 7.7 and 7.4 for this year and next, while offering a yield of three per cent plus, based on expected dividends of 6.5p and 7p.

Moreover, the shares trade at a near 30 per cent discount to the group’s latest reported net assets of £38.2 million, the equivalent of 265p per share.