News / Analysis: Result! New management firmly in the driving seat at Wincanton

Wincanton embarked on a strong upward climb on the stock market today, following an already impressive rally that began in early 2016 and appears unlikely to end anytime soon.

The shares of the UK haulage and logistics firm rose almost 7% to a nine-year high of £2.92 in early trading, following the announcement of preliminary results for 2016, which confirmed recent trends in regard to business wins, dividend and earnings growth, as well as soaring cash flows and investment.

Brexit & investment

In an exclusive interview with The Loadstar today, chief executive officer Adrian Colman was asked whether Brexit represented an opportunity for Wincanton. He said he had not so far witnessed “any downside from Brexit, and no changes in volumes”, while rising domestic manufacturing activity was a distinct possibility, going forward, given weaker sterling.

With its corporate restructuring officially over, Wincanton is focused on organic growth investment. In 2016, capital expenditure rose to £18m from £10m a year earlier, with the domestic house sector and infrastructure building “showing good dynamics”, Mr Colman noted.

In its preliminary results, Wincanton highlighted heavy investment in its “construction logistics capabilities, with the acquisition of more than 100 ready-mix vehicles supported by a contract with Hanson UK”.

Top line and margins

Annual group revenues were flat at £1.1bn, but remarkably, on a like-for-like basis, earnings per share grew 15.9% to £0.277, while underlying ebit and ebitda showed decent trends.

The retail and consumer segment, its largest revenue contributor with about 60% of group revenues, recorded a 4% rise in sales to £649m, and a steady 4% profit margin.

Sales in the retail general merchandise (RGM) sub-unit rose 13.4% to £315.5m, while retail grocery (RG) activities and consumer products (CP) were down 2.6% and 5.7%, respectively, to £228.7m and £105.1m.

RGM volumes were up because “we got new customers and enjoyed good organic growth” – as proved by the Screwfix win, Mr Colman noted.

He downplayed the loss of a contract in the CP unit, and talked-up the prospects of the industrial and transport (I&T) division, which turned over £468m in 2016, down 7.7% against one year earlier.

However, underlying profits margins in I&T – which include transport sector (TS) and construction activities – rose 100 basis points to 5.6%, leading to higher income of £26.3m for the year.

Transport sector revenues were more volatile than construction sales, yet construction – infrastructure building, in particular – is “a sector we like very much”, also thanks to a shortfall in home buildings, and it’s smaller, turning over £134m versus £207m for TS.

Financials

When asked how additional revenue growth would be achieved this year and in 2018, Mr Colman pointed out that the full benefits of contracts signed with IKEA and Wilco would fully show this year, while the top line was also expected to grow on the back of other organic growth initiatives.

Since he took the helm of Wincanton in mid-2015, his “real focus has been on bringing down debt and (boosting) cash flows”

“The business now is healthier and we can invest more than in the past,” he added.

Other financials metrics were in good order.

Net leverage is low; interest costs are down; its refinancing profile is sound; and the dividend is not only well covered by net income, based on a payout ratio of about 32%, but also is projected to rise in line with earnings in the near future.

Its shares currently yield 3.2% based on a dividend per share (DPS) of 9.1p for this fiscal year, but a DPS of 10p in 2017 is “not unreasonable”, Mr Colman believes.

Finally, the tax rate was marginally lower than in the previous year, while surging free cash flows were much stronger than in the past, helped by working capital management and pension deficit payments that stood at £15m. Pension agreements will be “renegotiated over the next 12 months”, but analysts would do well to assume £15m as a likely run-rate for pension contributions over the medium term.

Its rally on the stock exchange started only a few months after the new management team, including chief financial officer Tim Lawlor, took control of a business that was still in restructuring mode, but with its worse behind it, thanks to the capable work of Eric Born, who righted the ship before joining Swissport in 2015.

Remarkably, since mid-January 2016, its stock has appreciated 83.3% and the dividend has been reinstalled, testifying to the effectiveness of the corporate actions implemented by Mr Colman and the board.