MIDAS SHARE TIPS: Food delivery giant Kitwave caters to all our needs

About twenty years before his final defeat at Waterloo, Napoleon is said to have described England as ‘a nation of shopkeepers’. The claim was considered offensive, Napoleon got his comeuppance and today Britain prides itself on its retail qualities.

In food and drink alone, there are around 90,000 independent stores across the country catering to our last-minute, local and impulse needs. But we are a country that also likes a coffee, a pint or a bite to eat, and around 350,000 outlets offer just that service, from the Highlands to the Cornish coast.

Kitwave helps these businesses function by supplying name-brand food and drinks to more than 40,000 convenience stores, cafes and caterers across the country. Petrol stations, care homes, gyms and schools are also among the group’s client base, but in both cases Kitwave is very focused on delivering what businesses want, when they need it, at a price they can afford.

The strategy is working and Kitwave shares, valued at £3.42, should pay off. The company, based in North Shields, a few miles from Newcastle, started in 1987 with one self-service store. Today, almost 5,000 deliveries are made per day from 30 depots. Orders vary in shape and size, but Kitwave specializes in small, frequent deliveries, averaging £350 each time. Chilled and frozen products are particularly popular with retailers, while eateries source almost all their products from Kitwave, except fresh meat and fish.

The company’s range is extensive, with 44,000 individual products, from Magnum ice cream and McCain crisps to chips and cola to onions and lettuce.

Customers don’t pay delivery fees, so Kitwave makes money by adding a surcharge to the products sold. However, margins are small and many companies prefer to have their goods delivered rather than going to self-service stores.

The results for the twelve months to October 31st prove this point. Turnover rose 20 percent to £602 million, pre-tax profits rose 39 percent to £25 million and the dividend rose 21 percent to 11.2p.

Looking ahead, there is ample potential for continued strong growth. The wholesale market is huge, with an annual turnover of almost £25 billion, excluding cigarettes. Big players account for more than half of revenues, but there is still around £10bn left in the hands of independent operators.

Here Kitwave is doing better than most other companies, with growth that far exceeds its peers. The independent market is also highly fragmented, with hundreds of small players owning one or two depots and serving only local customers. This makes for attractive acquisitions for Kitwave, so the group has completed thirteen deals in recent years and more are expected.

Founder Paul Young, 67, is retiring this summer, but his successor, Ben Maxted, has been with the company for more than a decade and knows it inside out. In its early 40s, Maxted is eager to improve profit margins and productivity by making the most of technology, from driver route planners to headsets that help warehouse workers navigate orders more effectively.

Online ordering is also increasing, with the average number of orders growing as customers are presented with a plethora of product options. There is also a pipeline of acquisitions, as Maxted and chief financial officer David Brind have a wide network of contacts and can find deals before they hit the open market.

However, there will be no radical departure from Young’s proven formula. Delivering thousands of goods to thousands of customers day in and day out is a demanding task. Anything can go wrong and customers can be fickle. Kitwave’s success is based on developing relationships with its suppliers, understanding its customers and ensuring that goods are in stock and delivered on time to the businesses that need them.

The company joined Aim in 2021 and is reaping the rewards with greater recognition across the market. Brokers are optimistic about the prospects, predicting turnover of £660 million and profits of £29 million for this year, with a dividend of 12.7p. Maxted and Brind are keen to reward shareholders and Kitwave’s balance sheet is strong, so steady dividend growth is expected.

Midas judgment: Kitwave is a success story from the North East, aimed at retailers, cafe owners and diner ladies. It has achieved strong growth as a private company and has continued in that vein since going public three years ago. At £3.42 the shares are a buy.

Traded on: GOAL ticker: KITW Contact: kitwave.co.uk or 0191 259 2277