“Our price began to recover immediately after we met UKSA – I suspect it was your members who gave it a kick start ”*
Cash in on crops (I.C. 5.2.10) Population explosion, changing food expectations with growing affluence in the BRIC economies, and an annual 1% decline in available agricultural land, makes ours a global investment sector to consider, Ken Greetham, CE of Wynnstay, will tell you. However in the medium term the driver is weather. In last two years globally the weather has been kind and there is an abundance of food but a frost in Brazil, a drought in Australia or delayed rains in India can changed the position almost overnight. So food prices, which include animal feedstock (mainly soya and inferior grains) are volatile. Locally demand can be just as volatile. A good autumn and the arable farmers plant up and spring demand for seeds is low, a bad autumn reverses the situation and a bad spring followed by a bad autumn can severely affect volumes in one financial year whilst underlying demand is unchanged.
Static market but Loyal: Farmers are very conservative and do not like changing suppliers. At the same time they are also consolidating so acquiring new customers to grow the business is difficult. Not only do farmers need seeds they also require fertilizer (GrowHow is the only UK producer of Ammonium Nitrate fertilisers), and animal health products but also feedstock, where increased regulation and sophistication of compounding is making smaller mills less economic. To grow its farm supply business, 75% of turnover, Wynnstay admits it is on the acquisition trail. The move away from intensive egg production, banned from 2012, has also created a growth opportunity for Wynnstay, in partnership with free–range egg distributor, Stonegate, to promoted new feeds through up front advice and guidance on free-range poultry management – especially on the health side. Stonegate needs more suppliers of eggs.
Equestrian Style There are two other strands to the business. Wynnstay Country stores whose loyal customers stretch beyond the farmer to country livers and those following countryside pursuits although the equine market can be difficult –riding gear and tack can be serious fashion and so high risk. Cost and shortage of rural vets is expanding the store role in animal welfare with higher margin products for which trained staff – SQPs –are able to give guidance.
Beer for Dogs: The animal welfare aspect of their business, competent advice, spills over into the newest division “Just for Pets”, where the recession, seems to be good for growth. It costs about £150,000 to open a new edge of Town store. Chinese New Year’ day plus one is the birthday of all dogs. A day for owners and dogs to share a drink. You can buy Beer for Dogs whilst designer rainwear for dogs is the vogue gift.
Undervalued? ” Just for Pets” is the smallest division but some analysts say it is worth half the capitalized value of the business. Even without that view the price, it is suggested, is at least 10% below a realist NAV Wynnstay intends to grow, it manages its cash with the miserliness of any farmer, it looks across the field gate to see what it competitors are making a success of, and its moves forward – a new pet store or a small acquisition, only when it has the cash in hand, and trained staff to offer excellent advice and in store service to win and retain customers, or the mean of stripping out costs and adding product range to its rural acquisitions. Risk Averse: With typical farmer caution there is no pension liability, and will not be. The skill, in a market with exceptional price volatility, is matching supply and demand at a price and with a margin. Wynnstay is not a commodity speculator, although 2008 did produce windfalls, which mask the achievements of 2009.
Peter T Wilson © ptw.5.2.10
This report is based upon analyst style meeting, held at the Kings Arms, Didmarton, in rural Gloucestershire, with Wynnstay plc on February 4th 2010. A planned analyst/broker presentation of 45 minutes developed into a 2 hour probing question and answer discussion which was finally forced to close by the aroma of English rare roast beef at its best. Members first met Ken Greetham*, Chief Executive and Bryan Roberts, Finance Director at their Astley, Shrewsbury site on June 29th 2009. On the day of that visit the share price was 198.5p and the projected yield a little over 3% c. On 4.2.2010 it was 244p, the yield was 2.66%, four times covered and the PE 7.22.
The next meeting with Wynnstay will be in Bromsgrove in the autumn of 2010.
Copy of presentation available from Dr C Moss, by e mail only: camuksa@rya-online.net
UKSA, its members and contributors of articles are not IFAs and do not give financial advice. This article is a factual report of a meeting.
