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NWF shares renew rally on lighter-than-expected dairy dent

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Shares in NWF returned close to a 13-month high after the fuel-to-feed group revealed better-than-expected profits, and said it was "confident" over prospects despite the headwind of soft dairy demand.

The UK-based group reported underlying pre-tax profits of £8.1m for the year to the end of May, a rise of 5.2% year on year, and narrowly ahead of expectations.

The increase came despite "difficult" conditions in the feed division, for which the key dairy customers "suffered significant reductions in milk prices, in many cases to below breakeven", with the average British farmer receiving 24.7p per litre, down 7.4p per litre year on year.

"This in turn put a strain on the feed supply market," the group said.

While sheep feed demand improved from 2014 levels, which were undermined by a mild spring which reduced the need for bought-in fodder, NWF's feed division suffered a 9.8% drop to £144.9m in revenues.

That fuelled a decline of 8.4% to £492.3m in group sales, a figure actually below market expectations for a £504m figure.

'Appropriate acquisitions'

Nonetheless, NWF offered some reassurance on the division's prospects, saying that the division's customer base of more than 4,300 farmer, besides "the underlying robust demand for milk and dairy products, results in a reasonably stable overall demand for our feed".

Indeed, flagging a "strategic emphasis on agriculture", NWF said it was in the market for further acquisitions in the sector, "to increase our presence in the UK".

The group said it was looking for "appropriate strategic bolt-on acquisitions" too in its fuels business, which had, lifting operating profits by 34% to £3.4m in the year to the close of May, performed ahead of expectations, helped by the weaker crude oil price.

'Surprising level of resilience'

The results prompted Panmure to lift by 10p to 175p its target for NWF shares, on which the broker has a "buy" rating.

At VSA Capital, Edward Hugo said that the group had "demonstrated a surprising level of resilience in light of some pretty tough markets", highlighting the continued fall in milk prices being offered by processors, against a backdrop of continued weakness in international values.

The latest GlobalDairyTrade auction, later today, is expected to show a further drop in dairy commodity prices, already at 13-year lows.

"Pessimists predominate in the pre-auction predictions," said TobIn Gorey at Commonwealth Bank of Australia, adding that "it is easy to see why that is.

"Between lacklustre demand, weak futures, poor auction participation and seasonality working for lower prices, there is little reason to be anything other than bearish."

NWF shares nonetheless extended their rally of the last month in London, touching 158.9p in early deals, just short of a 13-month high set last week, before easing to 158.6p, up 1.3% on the day.


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