Kitwave (KITW:AIM)   340p

Gain to date: 3.3%

We highlighted food and drink wholesaler Kitwave (KTW:AIM) in March at 329p for its exciting market share opportunity and scope to deliver plenty of growth and income for investors in the years ahead.

Our view was the cash-generative company could sustain its positive trading momentum and serve up further earnings upgrades given its competitive advantages and robust acquisition pipeline in a highly fragmented UK grocery and foodservice wholesale market.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

After motoring to an all-time high of 406.5p at the start of May, the shares fell following a trading update (2 May) warning that operating profit for the half ended 30 April would be ‘slightly behind’ the prior year due to increased investment and after wet weather dampened demand from hospitality customers of Kitwave’s higher margin Foodservice division.

The wholesale firm’s first-half results (2 July), which revealed a 14% adjusted pre-tax profit drop to £8.4 million as finance charges rose post acquisitions, triggered another share price dip. However, group revenue rose 8% to £297 million thanks to organic growth and recent acquisitions, cash generation proved reliably strong and management insisted the firm was on track to deliver in-line year-to-October 2024 results, albeit with an increased second-half weighting.

WHAT SHOULD INVESTORS DO NOW?

Kitwave’s shares have rallied since their temporary bout of weakness to leave our ‘buy’ call 3.3% to the good. While the increased second-half weighing means much has to go right in the balance of the year and is a risk to weigh, we remain bullish on this progressive dividend payer with a strong balance sheet.

The company remains well placed to drive further organic growth as it consolidates a fragmented wholesale market, while construction of the new Foodservice distribution site in the South West is nearing completion and will add capacity and yield further efficiencies.

Canaccord Genuity forecasts 13% growth in full-year 2024 revenues to £678.8 million and a 5% uplift in adjusted pre-tax profit to £29 million, rising to £710.1 million and £31 million respectively for full-year 2025.

Based on the broker’s 2025 forecasts for earnings per share of 32p and a 14p dividend, the shares remain cheap on a prospective price to earnings ratio of 10.6 with an attractive 4.1% yield.

‹ Previous2024-07-11Next ›