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Questor share tip: Investors in for the long haul with Wincanton

There are signs haulage group Wincanton is heading in the right direction but it will be a long road to recovery, says Questor

Wincanton
103.25+3
Questor says HOLD

LOGISTICS and haulage group Wincanton has been in intensive care for some time. However, as it renews contracts with its biggest clients, its shares are worth watching, as the rating is in value territory.

Wincanton said yesterday it has signed a new five-year deal with oil giant Valero, formerly Chevron, which will see it satisfy up to 600 customer orders a day at 1,000 locations across the UK.

The company will also take over some of the higher margin planning and logistics work for the oil group. Eric Born, Wincanton chief executive, said: “This proves the capability to deliver value-added services that are usually out of scope within a traditional fuels distribution model.”

The contract comes hot on the heels of new haulage deals with Morrisons, Pernod Ricard, BAE Systems and Sainsbury’s.

Wincanton is well diversified, with 12pc of the group involved in construction, 13pc in tankers, 15pc in fast-moving consumer goods, 25pc in groceries, 25pc in general merchandise and the balance in other haulage. As such, the company is highly exposed to economic activity in the UK. “There are signs that there could be some improvement but it is too early to call a recovery,” said Mr Born.

The company is slowly dragging itself out of intensive care. In the full-year to March 2013 it reported revenue of £1.09bn and underlying pre-tax profits up 11.5pc to £32.1m. Net debt was cut to £108m in the period and Mr Born hopes this will fall to around £100m at the end of the current year.

This is a decent achievement considering net debt was £152m in 2011, when the dividend was axed.The group is also struggling with negative net assets and a pension deficit that has widened to £149m as bond yields have fallen.

The shares arguably reflect all of these issues and more on a PE ratio of 7.4 times 2014 forecast earnings, falling to 7 times next year.

There are signs that Wincanton is on the long road to recovery but, Questor believes it is still too early to call exactly when that improvement will come. Hold.