Wincanton shares: Good value and dividend income

by Graeme Evans from interactive investor |

It's not a glamourous sector, but there's plenty to like about this busy trucking company.

Even if logistics is unlikely to get investors' pulses racing, Wincanton (LSE:WIN) stated a pretty good case for the sector today with a 10% dividend hike and robust earnings performance.

The Somerset-based company's full-year results showed that it is defying the Brexit and consumer uncertainty after new business wins with the likes of Weetabix and Co-op and contract renewals with Asda, Lucozade Ribena Suntory and Halfords (LSE:HFD), among others.

Underlying earnings rose 8.8% to 33.5p a share, despite revenues falling 2.6% to £1.1 billion following the loss of certain contracts during a period of restructuring at the end of the previous financial year.

Shares jumped 4% to 263p to help Wincanton continue the recovery from the sharp sell-off seen in the second half of 2018. Liberum said the shares were still "compellingly attractive" based on a projected price/earnings (PE) multiple of 7.4x and a dividend yield of 4.3%.

Source: TradingView Past performance is not a guide to future performance

Analyst Gerald Khoo added: "In our view, this valuation does not reflect the quality of Wincanton's earnings, with good coverage by multi-year contracts often with blue-chip customers." He also highlighted a record of consistent earnings and the forecast 10% annual dividend growth, which is more than 2.9 times covered.

Khoo has a target price of 375p, compared with 360p at Numis Securities and 310p at RBC Capital Markets. RBC said there was scope for Wincanton to significantly increase the dividend unless strong investment opportunities arose.

That view is supported by a strong balance sheet, with the company today reporting that cash generation had doubled to £57 million in the year to March 31. Net debt was reduced by more than a third to £19.3 million.

Despite the economic turbulence, Wincanton appears well placed for the new financial year after a number of substantial new contract wins toward the end of the previous year.

Investors will also be hoping for a continuation of its strong margin performance after a focus on contract discipline and valued-added activities helped the operating margin to improve by 30 basis points to 4.8% in 2018/19.

Numis said a similar margin this year would lead to a 2% upgrade to its 2020 profit forecasts to £51.1 million and increase EPS by 5% to 34p.

Retail general merchandise and construction made up almost half of revenues in the half year, which RBC said was an improvement from a third in 2014/15. The broker's analysts see this changing business mix as helpful to the investment case. They added:

"These are areas where Wincanton is a logistics market leader with scope to take share."

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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