Peel Hunt upgrades NWF, highlights attractive entry point

Peel Hunt upped its stance on NWF Group - a specialist agricultural and distribution business delivering feed, food and fuel across the UK - to 'buy' from 'hold', retaining its 195p price target as the shares have recently slipped back to an "attractive" entry level, supported by a 3.9% yield.

The brokerage said NWF had a stellar 2018, with impressive returns in Fuels, and an average return on net assets of 53% over the past five years. It said that while there will always be some variability due to the weather, the company has demonstrated that it can successfully run depots through the cycle.

"A different approach may be required as the business expands, but the opportunity for acquisitions looks substantial," Peel Hunt said.

"Currently, the top ten players control 23% of the market, with the remaining 77% split between 150 companies. This gives NWF plenty of targets to build a pipeline of acquisitions. We would expect 1-2 per annum to start with, which could accelerate as the company delivers."

It also noted that NWF has invested in its Feeds business, with a £3m spend on its new mill in Longtown.

"The benefits are now embedded in the business and we see NWF as having an asset base that is fit for purpose. In order to proceed from here, the company will need to increase volume throughput, either organically or through acquisition. We also expect the company to look to add specialist feed businesses to broaden the product mix."

As for the Food business, Peel said it is looking more stable after a period of flux as a major customer moved on, meaning NWF had to attract new customers.

At 1610 GMT, the shares were down 0.4% to 173.30p.