NWF Group

BUY

01/02/2012 Ben Jaglom

Food, fuel and feed distributor NWF Group (NWF) blamed the 'exceptionally mild weather' for a slide in profits in its fuels division.

The AIM-quoted concern declared an 18.2% slide in pre-tax profits to £1.8m on sales up 29.6% to £263.7 million for the six months to November. Net debt stood at £29.3m (2010: £17.1m) while the interim dividend stood flat at 1p.

NWF's feeds division saw profits sink from £1.5m to £600,000 as a result of a 2010 comparative in which gains were made from forward material purchases with sales soaring by 23.9% to £60.1m as a result of increased prices.

Its food division reported a powering ahead in profits from £1m to £1.8m on sales of £22.9m (2010: £22.3m), with the group enthusing that this came from initiatives that included 'increased backloads and more efficient operations'.

Its fuels division declared that the weather conditions led to 'reduced demand for heating oil' and 'increased competition for commercial business', with NWF declaring profits to be break-even (2010: profit of £700,000) on sales of £180.7m (2010: £132.6m), with the higher sales coming from rising crude prices and the result of acquisitions.

In an interview with Growth Company Investor, chief executive Richard Whiting remarked that the food division 'continues to see reasonably stable volumes', with the supermarkets said to be 'still fighting for the consumer's pound'.

He noted that the group was undertaking a reduction in its workforce and restructuring its shift patterns, adding that the past year had seen the company 'go on' with its plans to acquire more businesses (Shropshire-based Swan Petroleum was acquired last October for £2.75m).

Analysts at house broker Peel Hunt are forecasting pre-tax profits of £6.9m (EPS: 10.5p) on sales of £639.7m for the year to May 2012. A dividend of 4.8p is also pencilled in, with 5p forecast for 2013.

Last rated by Growth Company Investor last May with a buy/hold recommendation, the shares currently trade at 115.5p. Offering a considerable yield of 4.3% on 2013's dividend, shares in NWF represent an appropriate investment for those looking for income in the FTSE Small Cap/AIM sector.

The latest results are somewhat disappointing but do little to alter the long-term direction of the group. Buy.