Stock of the week: Wincanton
Our stock of the week is Wincanton which provides supply chain solutions in the UK and Ireland including transport and warehousing for various market sectors. Customers include many blue chip companies in defensive sectors which means revenues should be resilient should economic growth falter.
The Wiltshire based company describes itself as Britain’s largest logistics provider, although it still only has 4% market share, so attracted investors should appreciate there is plenty of scope for further growth.
Indeed, there is great potential for more web-based activity, such as online retailers, as well as more growth in sectors such as defence and healthcare. The company has secured contract extensions with the likes of Thales, and attained new business this year with retailers such as Wickes, IKEA, and Argos.
In April, Wincanton said its retail and consumer division had continued to perform well in the second half and the restructuring in the industrial and transport division is making progress. The company also expects its full year results, due to be announced on 17 May, to be in line with expectations.
After recently building a 2% stake in Wincanton, Gatemore Capital, an asset management firm renowned for pursuing activist campaigns, has called upon the group to sell one of its two core haulage and logistics divisions and refocus the business. Shares have risen in response to this news.
The shares trade on a 2019 price/earnings ratio of just 8.1 times, which is a good value relative to peers. Investors should be encouraged by the prospective dividend yield of 4.3% which is above average and dividends are three times covered by earnings.
The wide diversity of customers, potential to grow market share and the healthy dividends are all positive for investors and therefore we recommend Wincanton as a ‘buy’ for investors seeking a balance of income and growth and willing to accept a higher level of risk.