SIF Folio: Wynnstay Looks Like A Defensive Dividend Buy

15th Jul '20 by Roland Head

13 comments 2613 reads

The ethical and governance issues faced by investors are making headlines at the moment, thanks to the scandal that’s embroiled Boohoo. The online fast fashion retailer is alleged to have contracted work to Leicester companies paying employees less than the minimum wage.

The ethical ins and outs of Boohoo stock were discussed at length in the comments to Monday’s SCVR. If nothing else, I think these events are a useful reminder of how difficult it is to define a widely acceptable set of criteria for ESG investing (Environmental, Social and Governance).

It’s food for thought. Fortunately, I don’t take a fixed stance on ESG issues in the SIF portfolio, which is run according to a set of financial rules. With that in mind, let’s move on to this week’s stock, agricultural supplier Wynnstay (LON:WYN).

A safe bet for ESG investors?

As a UK-based agricultural supply company that’s been supporting British farmers with things like feed and fertiliser for over 100 years, you’d probably expect Wynnstay to score well on ESG issues.

I wouldn’t necessarily disagree with this view. But I think it’s fair to say that many environmentalists would argue that the modern farming industry - especially meat and dairy - contributes heavily to problems such as river pollution, environmental damage, food inequality and excess carbon emissions. Maybe not so great in ESG terms?

That’s a debate for another day. What interests me now is that AIM-listed Wynnstay appears to tick all the boxes in my full-strength SIF screen. It even boasts a 4.6% dividend yield, recently confirmed!

Cheap, defensive and durable?

For a £60m firm in a rather dull and defensive line of business, Wynnstay has had a lot of coverage recently on Stockopedia

24 March 2020: Jack commented on Wynnstay in the SCVR, noting early signs of improving momentum and strong value metrics, despite low margins.
15 June 2020: Jack revisited Wynnstay in a feature looking at quality dividend stocks. An apparently solid dividend is a key attraction for me, too.
24 June 2020: Paul mentioned the firm’s half-year results in the SCVR. He commented that strong trading in a difficult period suggested Wynnstay might be worth a closer look.

I have to admit this stock has flown below the radar for me due to its small size.…

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Martinus 67

15th Jul '20

Hello Roland,

Thanks for your very detailed breakdown of this stock and your views that it's possible contender as a defensive stock.

Do you have any concerns that Brexit might effect the outlook of this company as a no deal could have major negatives on the farming sector?

Robert Middleton

I bought and sold at a loss in June, but bought back in again and am currently up 23%. Much to like about WYN. Happy to let it run.

LeeLPM1985

This is great article. It feels like a solid stock that as you say perhaps 'flies under the radar' somewhat being not necessarily a 'glamour stock'. Have held for a couple of months now and the Stockopedia values led me to decide to invest. Thank-you again for the detailed writeup.

Albertos

Hi

Great article (although slightly wary of confirmation bias) - I bought a few months back after it appeared on the "Top Screened Stocks on the Move" on the homepage. I was looking for something defensive and this seemed to fit the bill and had a very strong balance sheet.

There is also a bit of a read-across today from Carr's (LON:CARR) :-

"The Agriculture division is currently trading ahead of the Board's expectations. In the UK, farmers are maintaining normal livestock operations and a marginally higher demand for feeds, supplements and fuels has enhanced revenues. "

The company is wary of Brexit from my reading of past reports. My own view is that farmers will be looked after in the event of a no-deal Brexit if for no other reason that people were shocked about how little of our own food we grow.

Edit:- Looks like you may have caused a bit of a rise in the SP, which brings me to a bit of a downside - it can be illiquid and sometimes the spread is unpalatable.

Lowes Holdings

Great dive into Wynnstay (LON:WYN) metrics; very pleased I picked up some shares a month ago, as my screen identified it as great defensive and dividend payer. A healthy company with continued potential, I'll be interested how it fairs during Brexit.

Bluesky Ventura

Hi Roland,

Really nice analysis, Looks like a very safe bet.

I like modeling out valuation from the past and into the future. (see the graph below). The current share price is hampered by BREXIT uncertainty. Hopefully, will be rerated after the post BREXIT settlement.

Note: 2017 dip in performance is due to Just for Pets Limited (formerly part of the Specialist Retail Division) was regrettably placed into administration on 10 October 2017

DYOR

BSV

jpringle

Great analysis Roland. Bought this recently. Looks well run and been around for a long time. Happy to hold.

bsharman

Great article thanks Roland. I came to the same conclusion and bought some in June.

Caper4

many thanks Roland . This is the second largest position in my portfolio and is a stock for the long haul. Very few of these around at the moment . My biggest ? Boo Hoo but probably not for the long haul :)

Roland Head

Hello Martinus67,

I agree that Brexit is a bit of a wild card, but my feeling is that the government is unlikely to throw the agriculture sector under a bus, especially at this time.

Over time we could see the farming sector evolve, but as others have said I would hope that overall food production in the UK remains stable (at least).

For me, Brexit falls into the category of "unknowable". Rightly or wrongly, I've pretty much excluded it from my investment process. My thinking is that successful companies will (mostly) adapt, as they would to any other major regulatory change.

Regards,

Roland

Berksbee

17th Jul '20

Very useful. I do feel our paths keep crossing WYN is also one of my key holding in my "Blastig" Portfolio. I've held since mid Feb and topped up in June. I must confess to taking a small profit on one of my batches yesterday - more my rules rather than any concern about the company.

I have very little to add to your excellent analysis except to say that I've seen posts concerned about very low margins. WYN has its roots in the Farming Cooperatives, they used to , and I suspect still do, run a cost plus operation of basics for members. Result small margins but a guaranteed profit.

PS would be very interested in your views on Finsbury Food (LON:FIF) which I believe is also part of your SIF and had a recent market update. If fell on Covid and has remained flat - given its market (baking) I am somewhat surprised.

alpha2

18th Jul '20

I came across WYN from a different direction. I was doing background research into a private company in which I have invested. This is an international farm data aggregator for major food manufacturers and supermarkets, think for example of Sainsburys, Macs and Muller. Amongst their other clients was WYN.

The UK, probably due to CJD and Foot and Mouth is one of the world leaders in tracking and tracing farm data (live stock, crop planting, chemical use, animal welfare etc). The farmers have, by law, to provide much of the data generated to the Government and it is free to access but aggregation and interpretation is not so easy. They also collect data on behalf of accreditation schemes like Red Tractor. The clever bit is that the private company supplies relevant aggregated data back to the farmers for free. Farmers love free stuff!

The fact that WYN are clients of this cutting edge company looked like a positive indicator to me. Next I did some local research as my Godson is a farmer in the West Midlands where Wynn are based. The feedback here was not so positive in that he said the stock distribution to their Agricultural Merchanting division was not terribly efficient but overall was well disposed toward the business.

Ultimately, it seems that Wynnstay are very well in tune with the direction modern farming is going with ever greater importance of sustainability and tracing as this recent advisory confirms https://www.stockopedia.com/share-prices/wynnstay-LON:WYN/news/urn:newsml:reuters.com:20200713:nRSM7292Sa

Together with the stock ranks this seemed a good opportunity at around 270p and other than the price going up nothing has changed. I intend further add to my position when the market next dives.

SIF Folio: Wynnstay looks like a defensive dividend buy

A safe bet for ESG investors?

Cheap, defensive and durable?

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Roland Head

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