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Given the enormous political uncertainties over the next few months I’m keeping lots of dry powder ready to invest when opportunity arises amid the flux. While I’m not committing much money to new investments, I will be analysing companies, waiting for a good moment to invest.
One company that caught my eye has already suffered because farmers have little clarity over what type of business environment they will be trading in a few months down the line. Wynnstay Group (LSE:WYN) was set up 100 years ago as a farmer’s cooperative to supply items such as feeds, fertilisers and seeds. These bulk items still produce about half its profits. (It still has 3,000 farmer shareholders, but is now on AIM with many other shareholders).
The other half comes from its 56 country supply stores which carry 20,000 product lines to suit not just farmers but also horse enthusiasts, small holders, dog-owners, etc.
Over two years the shares have fallen from over £6 each to 300p – 310p as the dangers associated with Brexit loom ever larger.
In March the company issued a profit warning saying that for the year to the end of October it is “prudent to anticipate that the full year outturn is likely to be substantially below current market expectations”.
Also the half-year results to the end of April came with some fearful remarks, “more cautious spending patterns by farmers in reaction to a softening in farmgate prices and Brexit uncertainties, created challenges for the agricultural supplies sector… it is clear that infrastructure spending has been delayed by many farmers while the outcome of Brexit remains unclear.”
Would you invest in your farm right now (if you had one)?
Take UK sheep farmers as an example (and Wynnstay’s heartland is Wales). A third of what they produce is exported to Europe. Phil Stocker, of the National Sheep Association, said “If you think of the volume that goes into the European market and think of the time it takes to agree trade deals, it is going to take some years – six, eight, 10 years – to open up equitable markets across the world.” Robert Macdonald, a hill sheep farmer and an NFU Scotland committee member, said “If we have a no-deal Brexit the consequences are potentially catastrophic.” He said his hope was that a disaster for the industry could be averted by government agreeing to a system of payments to help farmers through a no-deal situation. (BBC interview, 4 March 2019)
Mr Market has clearly taken on board some gloomy potential outcomes, and push down the share. If the worst type of Brexit occurs and the UK government doesn’t come to the rescue by taxing the rest of us to hand money to farmers then Mr Market has, perhaps, not yet been gloomy enough regarding Wynnstay – it is in for a rocky ride.
On the other hand, if Brexit disaster is avoided we have here a well-managed company with a sound business strategy, loyal customers, diversified product line/customer groups, strong finances and a history of good earnings relative to the current share price.
Cyclically adjusted price earnings ratio
Share price 300p – 310p. Market capitalisation 19.7m shares x £3.10 = £61m.
| 2018 | 2017 | 2016 | 2015 | 2014 | ||||||
| EPS – basic | 39.1 | -1.4 | 30.0 | 34.7 | 35.3 | |||||
| EPS – underlying | 39.1 | 32.3 | 30. |
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