Bumper fuel profit meant that NWF (LON: NWF) produced record results in the year to May 2022. All three divisions improved their profit during the year and NWF has net cash of £9m.
More than 30% of fuel sales are for heating and 12% used in agriculture. There is also significant demand from lorry fleets. There is still potential to fill in the gaps in the regional fuel depot network.
NWF has historically tried to achieve a profit of just over 1p per litre. The volatility of the oil market and availability constraints have enabled it to make around 2.6p per litre, although it will not be able to maintain that margin. Fuels operating profit jumped by 85% to £17.2m, even though volumes fell by 4.6%.
In the year to May 2022, group revenues were 30% ahead at £878.6m, while underlying pre-tax profit jumped from £11.9m to £20.9m. That was excluding a £8.3m impairment charge for feeds division assets. There was a continued steady increase in the total dividend to 7.5p a share.
The food distribution division is fully using the additional capacity at Crewe, which is doing better than expected. That pushed up revenues from £54.8m to £62.6m, while operating profit jumped from £1.9m to £2.8m. Additional fulfilment and packing work helped margins. A new managing director has taken charge. Further expansion of capacity will be based on additional contract wins.
There was a small improvement in feeds profit, but it is still not back to previous levels. The milk price has been rising, so that farmers will be able to cope with the rising commodity prices that push up feed prices.
The pension deficit has been reduced from £15m to £9m. The next pension assessment will be at the end of 2022. That helped net assets improve to £6.8m.
Acquisitions
There were no acquisitions last year, but the cash in the balance sheet will help to finance further fuels deals. The unusually high profit levels may make that difficult in the short-term, but management knows the businesses it would like to buy and can be patient.
The plan is to spend £10m a year, paying around six times operating profit. That will enhance earnings.
Assuming a profit of 1.2p per litre for the fuels division, group pre-tax profit is expected to decline to £12m. At 223p, the shares are trading on 12 times prospective 2022-23 earnings, while the yield is 3.3%.
