Share price pull-back: an agricultural micro-cap stock to watch

Wynnstay Group (LSE:WYN) has seen its share price rise 41% year-to-date. Now this micro-cap is enduring a pull-back, is it a good long-term investment?

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The stock market can be a volatile place, particularly when it comes to lesser known micro-cap stocks. As a long-term investor, I try not to worry about a market pull-back. It’s a natural occurrence in the financial markets. And it gives me an opportunity to top up my investments with a few potential bargains. Choosing to buy stocks in the red is easier said than done. I often find myself asking: could it fall further? But then I reassure myself that if I’m confident in the underlying business, the price I pay shouldn’t matter as much as where it’s headed in the long run.

A micro-cap stock to watch

One such stock I’ve been considering adding to my portfolio is agricultural supplies company Wynnstay Group (LSE:WYN).

Year-to-date the Wynnstay share price has risen 41%. It’s a small company with a market cap of £96m. The pandemic caused challenges for the business, and Brexit didn’t help matters either. But in the group’s final results for the year ended 31 October 2020, it showed signs of resilience.

Full-year revenue fell 31% year-on-year, partly due to reduced volume in grain trading and other commodities. That’s a high amount, but with the pandemic and Brexit to contend with, it’s not really a surprise.

Despite this, underlying pre-tax profit rose 4% thanks to strong feed sales at the end of the year. But earnings per share fell 10%. Net cash and assets both increased, and the company raised the dividend by 4.3% to 14.6p for the year.

Today the company has a price-to-earnings ratio (P/E) of 17 and dividend yield of 3%.

Positive sentiment building

Wynnstay believes the UK Agriculture Bill presents “significant opportunities”, as farmers are now incentivised for efficiency and environment initiatives. The bill provides a framework to replace outdated legislation and should help support farmers by paying them to produce public goods.

In 2017, the Wynnstay share price reached a high of 650p. If it can return to those levels, it has considerable growth potential ahead. However, climate change is impacting crop success and industrial farming is coming under fire. Technology is making advances into improving farming to reduce its carbon footprint.

Wynnstay has an advisory team to help farmers increase efficiency and productivity. Part of its strategy is following trends in product development, R&D and ultimately enhancing customer performance.

Growing through acquisitions

The Mid-Wales firm is expanding its horizons. It’s just completed the acquisition of two companies to complement its existing set-up. These purchases include the agricultural division of the Armstrong Richardson Group, and the fertiliser manufacturing business and assets of HELM Great Britain.

The Wynnstay share price is currently experiencing a pull-back, so is this a good time to buy? The long-term agricultural outlook does concern me, but we all have to eat and some areas of the world, such as China, are aggressively importing agricultural products to keep up with rising demand. This micro-cap has already enjoyed a nice share price run since the turn of the year, and I think the vaccine rollout gives further encouragement. A P/E of 17 is getting on the high side for a small company, but it’s growing through acquisitions and has a strong presence in the UK farming community. I think Wynnstay is a micro-cap stock to watch, and I’m tempted to buy some of its shares. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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