Stock of the week: Wincanton
Wincanton provides supply chain solutions in the UK and Ireland including transport and warehousing for various market sectors, including retailers, manufacturers, defence and construction. Customers include many blue chip companies in defensive sectors which means revenues should be resilient even if economic growth falters.
The Wiltshire based company notes itself as Britain’s largest logistics provider, although interestingly, it still has only 4% market share, so attracted investors should appreciate there is plenty of scope for further growth. 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.
In its latest trading update, Wincanton confirmed that its full year performance was in line with expectations. Proceeds of the sale of the records management business have enabled the company to reduce debt and restart dividends, while new contracts with Britvic and Wilko, alongside growth in merchandise volumes, is encouraging.
The shares trade on a 2018 price/earnings ratio of 9.8 times, which is good value relative to peers while the prospective dividend yield of 3.7% is also good. In fact, dividends are more than twice covered by earnings.
The wide diversity of customers, potential to grow market share and the healthy dividends are all positive for investors, although sentiment towards the stock could struggle if the UK economy falters badly in the Article 50 negotiations. Nevertheless, we continue to recommend Wincanton as a ‘Buy’ for investors seeking a balance of income and growth and willing to accept a higher level of risk.