RE: .21 Oct 2021 17:08
Buy wholesaler Kitwave which is firmly in the driving seat
Extensive fleet of vehicles and in-house drivers is enabling the wholesaler to boost its competitive position
Thursday 21 Oct 2021 Author: James Crux Great Ideas
Driver shortages and supply chain logjams are dominating the news headlines and could put a dampener on Christmas this year.
Yet one growth company doing its bit to deliver the goods in these unpredictable times is Kitwave (KITW:AIM), a small cap food and drink wholesaler with its own in-house established fleet of delivery vehicles and drivers and which isn’t reliant on third party logistics providers as a result.
Shares believes this independent delivered wholesale business is undervalued considering its cash generation, capacity to capitalise on the current situation to strengthen its competitive position, a proven buy-and-build strategy and its attractions as a play on the full recovery of the leisure and hospitality sectors.
DELIVERING THE GOODS
For the uninitiated, Kitwave floated on AIM at an issue price of 150p in May 2021.
Founded in 1987, the North Shields-based concern sells and delivers everything from confectionery, soft drinks and snacks to tobacco, beers, wines, groceries and frozen and chilled food, delivering to a diverse 38,000-strong UK customer base spanning convenience stores, pubs, vending machine operators and foodservice providers.
Among Kitwave’s competitive advantages is an extensive depot network giving the group nationwide coverage. It offers next-day delivery for deliveries within 25 miles of a depot and three-day delivery slots nationwide. And the company typically carries 23 days of stock to ensure it can fulfil orders even in the event of inbound supply chain delays.
Growth to date has been achieved organically and by gobbling up smaller, family-owned businesses, yet canny CEO Paul Young insists the UK grocery and foodservice wholesale market remains ‘highly fragmented’ and presents Kitwave with ‘numerous additional growth opportunities’.
Admittedly, this is a high volume yet low margin business and there is always the risk that Kitwave buys a company that proves to be sub-par. However, Young and his team know target market companies well, which limits the potential for overpaying for acquisitions.
Canaccord Genuity recently reiterated its ‘buy’ rating and 210p target price for Kitwave, implying 40% upside at current share price levels, with analyst Mark Photiades impressed by a visit to the company’s new purpose-built Butterfield facility in Luton.
Offering over 70,000 square feet of temperature controlled bespoke frozen, chilled and ambient warehouse space to service its network of independent customers in the south, the site also provides future capacity for Kitwave’s longer-run growth ambitions.
IN THE DRIVING SEAT
Significantly, the visit also showcased Kitwave’s in-house delivery fleet which the analyst says is allowing the company to ‘benefit whils
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