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June 3, 2011 6:53 pm

Sector provides food for thought

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W hile I usually focus on analysing individual stocks, I find it sometimes pays to take a look at the relative merits of a particular market sector.

Take the food sector, for example. Carr’s Milling, NWF and Wynnstay are three major quoted suppliers of a range of products – feeds, fertilisers etc – for our important agricultural industry.

They have a number of features in common. They are all old, well-established businesses based in the north-west and they have all developed conserv-atively over the years. They are currently trading well, remain modestly valued while paying rising dividends, and have very similar market capitalisations: £68m, £59m and £60m, respectively. They also reported similar operating profits for last year: £9m, £9m and £6.5m.

However, there are important differences, primarily in their profits mix and areas of diversification.

For example, Carlisle-based Carr’s is the only one of the three quoted on the main market – the other two are on the Alternative Investment Market (Aim). Agricultural trading and manufacturing in the UK, US and Germany, via 19 retail outlets, generates 74 per cent of its profits. Flour milling delivers 15 per cent. But another 11 per cent comes via an interesting portfolio of engineering companies, from fabrication to nuclear. Interim figures to February 2011 showed a 52 per cent increase in earnings per share.

NWF, of Nantwich in Cheshire, made an expensive and unsuccessful diversification into garden centres – but is now a more focused distribution business specialising in food, feed and fuel, which contribute 35, 23 and 42 per cent of profits, respectively. Its food division, Boughey – which uses 900,000 sq ft of warehousing, 135 trucks and 267 trailers – aims to act as “a consolidator of ambient grocery products to supermarkets”. Its feed division has a 14 per cent UK market share. Its fuels division is now the fourth largest in the UK – the acquisition of Eversons Fuels in January added a further 20 per cent to volumes. A mid-May trading statement forecast a record current year following strong trading in feeds and fuels over the winter and spring.

Wynnstay, which is based in Powys, is the only plc I know that produces its chairman’s statement in both English and Welsh! Its expanding feed and arable business produces 46 per cent of group profits, with retail accounting for the rest. This latter division comprises 28 country stores and 19 Just for Pets stores, which are being continuously refurbished and expanded – in fact, Wynnstay provides the only opportunity to invest in the UK pet retailing sector. In May, the £4m acquisition of Wrekin Grains was announced – to be integrated into Wynnstay’s existing Shropshire grain business. Interim results will be announced later this month – I expect them to be encouraging.

All three companies have done well for my portfolio – overall, I have made a profit from the sector. I first bought NWF in 2000 before finally selling out in 2005 having achieved threefold appreciation. I bought into Wynnstay in 2003 when it was quoted on Ofex, before profitably exiting in 2005, and then rebuilding my holding in 2009 at around 225p – today the price is 360p.

Looking at their current figures, all three still look like long-term lockaways.

John Lee is an active private investor, writing about his own investments. He may have a financial interest in any of the companies, securities and trading strategies mentioned.

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