Wincanton’s share price is trading at its highest level in a year, and despite a fall in turnover the 3PL’s operational strength appears to have pleased its critics, for now at least.
Setting the tone, Gerard Khoo, a broker at Liberum, slapped a buy recommendation on the stock after stating Wincanton – trading at around 269p per share – represented a ‘compelling valuation’.
In a trading update in April, Wincanton signalled that a decision to shed low margin work would see its group turnover fall, something Khoo picked out.
“The fall in revenue reflected the timing of contract losses coming ahead of wins in the year, but the growth in profits suggested the lost business was not making much of a contribution,” he said in his briefing note.
“Outgoing CEO Adrian Colman appears to be leaving the group in good shape” Khoo added.
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It appears to be a sentiment that’s shared. Last year Gatemore Capital Management – which made headlines after it affected regime change at DX Group – was agitating for the 3PL to sell either its Retail & Consumer or Industrial & Transport divisions.
But in a statement issued after the results were published its tone had changed markedly.
Liad Meidar, managing partner and chief investment officer at Gatemore Capital Management, said: “We are pleased that today’s results show Wincanton continuing to move in the right direction, and we support changes spearheaded by the new chairman [Martin Read] which should position Wincanton for further success.
“The market seems to be catching on, with Wincanton dramatically outperforming peers in the logistics sector over the past year.”
A full-year dividend per share of 10.89p, up from 9.9p a year earlier will have done no harm either.
It means that James Wroath, who will succeed incumbent Adrian Colman no later than October of this year, will enjoy something akin to a honeymoon period at the 3PL.
Colman has continued the work begun by his predecessor Eric Born, the Swiss Judo champion who professed that when it came to Wincanton, boring was best. Boring for Born meant improving the 3PL’s profitability by increasing turnover and lowering costs. He left in the summer of 2015 – handing over to group FD Colman – a job well done.
The road ahead
Wroath, currently chief operating officer, North America, for Lufthansa subsidiary LSG Sky Chefs, will have plenty to digest as he takes the lead.
Wincanton saw annual turnover fall in the year ended 31 March 2019 but profit increase, thanks to a strong performance in retail that offset contract losses elsewhere.
Turnover was 2.6% lower for the period at £1.14bn (2018: £1.17bn). Pre-tax profit (normalised to strip out exceptional items such as previous restructuring) was up 6.3% to £49.3m (2018: £46.4m).
Net debt was down by more than a third year-on-year at £19.3m.
Colman said: “This year, we have seen key areas such as our retail general merchandise business grow strongly, demonstrating the real value that we deliver to our customers.
“In the second half of the year we secured substantial new contract wins that should position the group well in the coming periods.”
Those new business wins included EDF Energy, Weetabix, Co-op, HMRC, Aggregate Industries, Roper Rhodes, Hapag-Lloyd, Jollyes and DCS.
The renewals included Asda, Loaf.com, Halfords, Micheldever Tyre Services, Lucozade Ribena Suntory, Marley, Ibstock, British Sugar and Valero.
Retail & Consumer
An increasing important part of the group’s business, turnover increased 2.5% to £708.9m with underlying operating profit 5.1% ahead at £31.2m.
Retail General Merchandise is far and away the largest component of this division and it enjoyed strong growth up 9% to £423.8m. This offset falls in Retail Grocery and Consumer Products.
Wincanton attributed growth overall to the full year benefit of new contracts with IKEA, Wilko and Wickes. This helped mitigate the loss of work with Tesco [the supermarket brought some of its warehousing supplied by Wincanton and DHL Supply Chain in house] and Premier Foods, which went to XPO Logistics.
Industrial & Transport
Having been through a restructure and lay-offs, the division appears to be pointing in the right direction. While the headline reduction in turnover of 9.9% to £432.6m in the period is far from ideal, underlying operating profit growth of 3.9% to £24.1m suggests the tough decisions taken in recent years have had the desired long-term effect.
In its results statement Wincanton said it had exited or reduced exposure to a number of lower margin areas, including its transport for Britvic, a contract that went back to rival Eddie Stobart after just over a year with the 3PL.
Despite this, Wincanton continues to look after warehousing for the drinks manufacturer at Rugby and Lutterworth.
Intriguingly, Tarmac’s decision to return to a regional distribution model, revealed by motortansport.co.uk last year, was cited by Wincanton as another example of where it had opted to reduce the volume of low margin transport undertaken with a client.
Within industrial and transport its transport services business was the biggest loser on paper, with turnover 18.6% lower at £171.4m year on year. Wincanton said this was in part to the late start of contracts that therefore did not offset losses.
It pointed to a deal with DCS Group, to provide nationwide transport, delivery and management of inter-site transfers of finished goods and stock in the period for the healthcare product distributor, as an example of what’s to come for transport services.
New man Wroath will certainly be hoping this is the case as he prepares to take the reins of a business back on the right road.
