On Friday of last week Britain’s largest third-party logistics company issued a Trading Update for the half-year to the end of September.
The Chippenham-based Wincanton (LON:WIN) group saw its first half revenue rise 8%, driven by continued volume and new business growth across its four main sectors.
It has managed to counter inflationary pressures across its markets, particularly through contracting on an Open Book basis, which gives a definite route to pass on cost increases to its customers – that operates on 70% of its contracts.
On its Closed Book contracts side, it has been very proactive in handling its cost pressures.
The Business – we have all seen its vehicles
The Wincanton group, which was set up nearly 100 years ago, is all about supply chain solutions for British business.
Operating from over 200 sites across the country, the group is responsible for some 8,500 vehicles, has 16.1m sq.ft of warehousing space, and it boasts around 20,300 employees, 5,380 of whom are drivers.
For many of the UK’s best-known companies, its business-critical services take in high volume efulfilment, storage handling and distribution, fleet and transport management, two-person home delivery, the operation of retailer ‘dark store’, and network optimisation.
Its Key Sectors and trade breakdown
The £403m market capitalised group’s last trading year, to end March 2022, saw it generating a revenue of £1.42bn.
For the last full year, the company’s four main segments were:
Grocery and Consumer, £517.6m revenues (36.4%), for the food focused sector the group creates a logical connection in one of the most critical supply chains, serving the grocery and consumer packaged goods sectors.
General Merchandise, £396.4m of sales (27.9%), where the group centred upon meeting the needs of its major multichannel customers in the non-food retail sector and for manufacturers and distributors.
Public and Industrial, £284.2m sales (20.0%), the group provides services for its customers in the government and public sector, infrastructure, defence, construction and energy sectors. It also covers healthcare, building materials, fuels and gases and bulk foods.
Efulfilment, which represented £223.2m (15.7%) of group sales, focussing upon the growing omnichannel eCommerce sector, its value-added services took in grocery home delivery and offering customer fulfilment centres.
Its customers – scores of the UK’s top trading names
It offers business critical services, including storage, handling and distribution, efulfilment, retailer, home delivery, fleet and transport management, and network optimisation.
The company also provides contract logistics, insurance, container storage and repair, and trustee services, as well as online solutions for warehousing space.
It serves customers in the grocery, consumer packaged goods, non-food retail, manufacturers and distributors, defence, fuel and gases, building materials, food, infrastructure, and eCommerce markets, as well as the public sector.
Amongst countless others, its customers include: Morrisons, Co-Op, Sainsburys, Weetabix, Muller, ScrewFix, ASDA; Texaco, Ikea, DEFRA, Lucozade Ribena Suntory, Dobbies Garden Centres, British Sugar, Heinz, Dwell, Nestle, Britvic, MGA, The White Company, Kelkay, Waitrose, Coca-Cola, Air Products, Roper Rhodes, Neals Yard, Aggregate Industries, Britvic, HPC, Sofa Club, Wickes, BAE Systems, Dairy Crest, Primark and Booths.
The Equity – excellent institutional list
There are some 124.54m shares in issue.
The larger holders include Columbia Threadneedle Investments (15.89%), Aberforth Partners (10.00%), JP Morgan Asset Management (6.15%), Schroder Investment Management (5.66%), Polar Capital (4.95%), Tellworth Investments (4.42%), M&G investment Management (3.76%), Unicorn Asset Management (3.56%), BennBridge (3.55%) and Welcome Trust (2.88%).
Broker’s Views – a 105p disparity in brokers DCF valuation
Following last week’s Trading Update analyst Robin Byde at Zeus Capital reduced his discounted cashflow valuation on the stock from 480p to 430p, even so he notes that still offers a 40% upside.
Believing that Wincanton’s business model is attractive in challenging times, he rates the shares as ‘defensive and oversold’.
His estimates for this year to end March 2023 suggest £1.47bn (£1.42bn) in revenues, with adjusted pre-tax profits of £61.9m (£58.1m), 40.5p (40.3p) in earnings and a 13.4p (12.0p) dividend per share.
For next year he sees £1.53bn sales, £66.1m profits, 41.6p earnings and 15.1p dividend.
Over at Liberum Capital, analyst Gerald Khoo was encouraged by the first half-year’s Update and now has a 535p DCF-based price objective on the group’s shares.
He looks for current year sales of £1.49bn, £62.6m profits, 40.9p earnings and 13.2p of dividend.
Next year his estimates are for £1.57bn revenues, profits of £69.8m, earnings of 42.2p and a dividend of 14.5p per share.
My View – a clear 100p below minimum value
I am encouraged by the way that Wincanton has the ability to up its prices in its contracts, where needed.
I am also pleased to see the enthusiasm from brokers for the group’s shares and their assessments of future prospects.
This group is at the sharp end of British Commerce as it is recovering, clearly shown by its incredibly impressive client list.
This is a ‘class act’ group, that is well managed and has a good balance sheet together with a strong pipeline of potential new business.
I really do feel that this company’s shares, at 323p, are wrongly priced and very capable of putting on another 100p and still looking cheap.
(Profile 07.05.19 @ 247p set a Target Price of 350p*)
(Profile 06.05.22 @ 412p set a Target Price of 500p)
(Asterisks * denote that Target Prices have been achieved since Profile publication)