Wynnstay Group shares reversed some of their summer slide after the feed-to-grain trading group said its results would be “significantly ahead” of market forecasts, boosted by UK weather factors and high fertilizer prices.
The UK-based group, trailing its results for the year to the end of next month, reported a “strong… trading backdrop” for many of its operations, reflecting in part a hot and dry summer which, in curtailing supplies of forage, had meant “unseasonally strong” demand for bought-in feed.
Higher milk prices had also “encouraged demand” for feed, Wynnstay said.
The summer weather had also meant an early harvest which was “benefitting the group’s grain trading volumes”, with high prices and easy fieldworking conditions boding well for performance ahead too.
“Early cereal seed sales in the last few weeks have been encouraging and, with attractive commodity prices and continuing favourable planting conditions, the outlook for the group’s arable performance is positive.”
‘Further upward pressure on fertilizer prices’
However, Wynnstay underlined as a “major driver” of outperformance its fertilizer division, which was benefiting from high values of nutrients, in particular of nitrogen types, as manufacturers have shut capacity in the face of record costs of natural gas, they key raw material.
“The continuing elevated prices, particularly for ammonium nitrate, have… increased trading results across all the group’s fertilizer activities,” the company said.
UK ammonium nitrate prices, as of July, stood at £841 per tonne for domestically-made supplies and £793 per tonne for imports – up by 150% year on year, according to the AHDB bureau.
Values have gained further support from the decision two weeks by CF Industries to temporarily close ammonia manufacture at its Billingham site in northern England, following on from the permanent closure of its other UK plant, Ince.
“These decisions are causing further upward pressure on fertilizer prices,” the group said, if acknowledging that the market conditions were likely to “temper demand” too.
Wynnstay added that “as a result of these factors, it is now clear that the group’s trading results for the financial year will be significantly ahead of current market forecasts”.
However, noting “the significantly uncertain macroeconomic background”, and inflationary pressure which “will increase costs for the business, farmers, and the end consumer”, the company left unchanged its expectations for 2022-23, as starts in November.
The statement was well received by house broker Shore Capital, which – estimating that the group was trading on a price-earnings ratio of 8.1, and enterprise value-ebitda ratio of 4.9 – said that Wynnstay offered a “fantastic investment proposition for investors at attractive valuation metrics”.
“Wynnstay is strategically very well positioned… and we look forward to further strategic and financial progress,” Shore Capital analyst Akhil Patel said.
Wynnstay shares, which touched a dive-year high of 658p in June, before sliding with the easing in grain prices and mounting concerns over the UK economy, stood at 605p in morning deals in London, up 4.9% on the day.