NWF Group: An enduring, profitable consolidator and likely takeover target
My favorite: High floor, high ceiling.
Not investment advice: First, read my full disclaimer here.
NWF Group is a small-cap distributor of essential products that has been profitable every year for decades, has a good ROCE across divisions and pays a 6% dividend. Furthermore, I think there is reason to believe they stand a good chance of being acquired over the next year at a time when industry multiples are much higher.
On a headline basis you see a business trading at 4.5x operating profit. On the asset side, take a dive into the financials and you will find 70%+ of the business covered by cash and real estate (ex-leases).
After speaking with the CEO, I believe this business is significantly undervalued and has the potential to deliver an attractive IRR for investors who join at this price level (154p).
Let’s dive into the valuation, why I think an acquisition is likely and insights from my conversation with the CEO. Overall, my conviction in the opportunity has increased.