SIF portfolio: High StockRank could be highlighting hidden profitability at NWF

Tuesday, Feb 13 2018 by
11
SIF portfolio High StockRank could be highlighting hidden profitability at NWF

When markets become more volatile and uncertain, sticking strictly to a rules-based approach such as SIF can become more difficult. But I also find that it’s something of a relief, as it removes the need for speculative decision making.

We don’t know whether the recent shakeout represents the start of a more prolonged bear market, or simply a long-overdue correction. What we can be sure of are the historic quality and value metrics associated with individual stocks.

For example, a defensive business that generated a return on capital employed of 20% last year will probably be more attractive at a lower price, not less so. There’s plenty of historical evidence to suggest that this kind of financial ratio is more likely to influence future portfolio returns than short-term stock market conditions.

So while market momentum may be turning against us, my view is that by focusing on quality, value and company-specific momentum -- the three elements of the StockRank -- we should still be able to find profitable opportunities in which to invest.

NWF could be a super stock

This week’s stock in focus is AIM-listed fuel and feed and grocery distributor NWF Group. This group has three divisions, all of which appear to have attractive scale.

NWF Agricultural supplies feed for one in six of the UK’s dairy cows. NWF Fuels is the third-largest supplier of fuel oils in the UK, with more than 58,000 customers. And the group’s transport business, Boughey Distribution, operates more than 100 trucks and 900,000 square feet of warehousing in north west England, where it consolidates grocery goods for distribution to major retailers such as supermarkets.

You might be thinking that these are all generally low-margin, low-growth businesses with limited appeal. Paul Scott came to a similar conclusion recently, but he also reprinted an interesting comment from one of the company’s advisers. This highlighted much higher returns on capital in this business than its low margins might suggest. It’s worth a read.

This week I’m going to look at the numbers behind NWF’s StockRank, and explain why I believe they support the view that this business is more profitable than it might seem.

Interestingly, NWF’s StockRank of 94 makes it one of the top three stocks in the energy sector, placing it ahead of cyclical oil producers…

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NWF Group plc is engaged in the manufacture and sale of animal feeds, the sale and distribution of fuel oils, and the warehousing and distribution of ambient groceries. The Company operates through three segments: Feeds, Food and Fuels. The Feeds segment is engaged in the manufacture and sale of animal feeds and other agricultural products. The Food segment is engaged in warehousing and distribution of clients' ambient grocery and other products to supermarket and other retail distribution centers. The Fuels segment is engaged in the sale and distribution of domestic heating, industrial and road fuels. The Company's subsidiary, Boughey Distribution Limited, is engaged in warehousing and food distribution. Its subsidiaries, NWF Agriculture Limited, S.C. Feeds Limited, New Breed (UK) Limited and Jim Peet (Agriculture) Limited, are engaged in animal feedstuffs and seeds supply. Its subsidiaries, NWF Fuels Limited and Staffordshire Fuels Limited, are engaged in fuel distribution. more »

LSE Price
196p
Change
-4.9%
Mkt Cap (£m)
100.2
P/E (fwd)
14.1
Yield (fwd)
3.2



  Is NWF fundamentally strong or weak? Find out More »


2 Comments on this Article show/hide all

Timmytrump 13th Feb 1 of 2
2

Roland

I enjoy your articles and use your screen for my UK and Euro portfolios. In these more uncertain times I think your screen becomes far more relevant.

I have held NWF (LON:NWF) in my SIPP for a few years and am a Happy holder for the income and diversification.

Keep up the good work.

Tim

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Velo 15th Feb 2 of 2

Quickie observation on that longer term momentum:

Check out the momentum of the SP for the last full 2 years. Lower highs (generally) and lower lows. For 2 years it has overall been trending lower, with lovely uptrends inbetween each downward retrace.

I'm putting it on a watchlist to see if it that cycle continues and pick it up in the 120's if - (big IF) - if it fails in the very low 170's (where it is more or less today; 175 & above - and I'm likely to be totally wrong; but allow it an overshoot to see if only temporary) and then reverses the current bull trend. If it does, then it's possible it might not stop until it exceeds the previous low in the 130's.

Anything from 130 to sub-130 will make it a go-er for me.

If it's to be and it does turn imminently, then the full retrace to its floor could take 3 months or so based on 'previous'. Pure supposition but can't hurt in a watchlist.

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About Roland Head

Roland Head

Private investor & writer on stock markets with a particular fondness for free cash flow, dividends and value, plus an interest in resource stocks. In earlier life, I worked as an engineer in telecoms and IT. The quantitative, rule-based mindset required for this type of work is probably reflected in my investment style.  Another factor that affects my investment choices is my experience working for a large telecoms company at the turn of the century, when tech stocks were booming. Watching this bubble inflate and then implode from the inside was very educational. more »

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