Why this logistics firm is really going places
The investment column that makes the most of your money
LORRIES and warehousing are the unsexy part of business. But while logistics may not set the pulse racing, it is essential to the operations of wholesalers, retailers and manufacturers dealing in anything from aerospace components to baked beans.
Get it right and logistics can be key to a company’s efficiency, so it is worth paying for. And the companies that provide the lorries, warehouses and computer systems that manage schedules and storage can be a cash cow, earning a steady income and paying out steady profits and dividends.
One such is Wincanton and, despite a strong share price performance over the past few years, its shares still look undervalued. On top of that, the group looks set to start delivering a decent dividend.
Wincanton had a bad recession in the wake of the financial crisis. The company was loaded with debt and its business lacked focus. The intervening years have seen a remarkable turnaround.
The company is a sizeable player in the logistics sector. Its clients include Sainsbury’s, Co-op, BAE Systems and Heinz. Many of these groups have signed up for contract renewals lasting to 2019 or beyond. The result is a very visible revenue stream in the future.
Its latest annual results showed revenues at £1.147billion and pretax profits at £65.8million.
This figure included an exceptional gain after Wincanton disposed of part of its business. But looking behind that figure to operating profits showed a figure of just over £50million, up slightly on the year before.
Half-year results issued last week showed those operating profits climbing still further.
What is particularly attractive to investors is the prospective dividend. For the year to March 2016, the group paid out 5.5p a share, its first dividend for quite a few years. Last week the company announced a 3p interim dividend and analysts at stockbroker Liberum expect the payout for the current year to total 9p.
At today’s share price of 208p, that amounts to a 4.3 per cent yield. On this basis the shares look undervalued and if expectations are met investors could see a healthy divi- dend payout plus some capital gains as the market revalues the stock to reflect this earnings potential. The one fly in the ointment is Wincanton’s sizeable pension fund deficit, which stands at about £169 million and is due for a three-yearly reassessment next year. There is a risk that the group will have to pay out more to satisfy its pension trustees. But the company has a repayment plan in place and has shown that reducing its liabilities is a priority. Last year, it sold its document storage business, known as Records Management. The proceeds provided the one-off boost to profits, but the company used the cash to reduce its debts and make an extra contribution to the pension fund.
The real risk of an economic slowdown in the UK could be a headwind to the business. But the case for this share is not that it is set for stellar growth, but that its restructuring has focus and is going to start delivering earnings and dividends.
Midas verdict: Wincanton turned the corner some time ago, but the market has not yet caught up with its real value. Its forecast dividend yield of 4.3 per cent is enough alone to merit considering buying these shares. Should the market revalue the stock, there could be capital gains as well. At 208p, the shares are a buy. This newspaper adheres to the system of regulation overseen by the Independent Press Standards Organisation. IPSO takes complaints about editorial content under the Editors’ Code of Practice, a copy of which can be found at ipso.co.uk.