A virtuous trinity of growing profits, rising margins and falling debt sees logistics specialist Wincanton (WIN) adding 9.7% to 130.5p after the group's full-year results show improvement across all the metrics that matter.

While revenue only inched up 1.1% to £1.1 billion, a 6% increase in underlying operating profit to £48 million and a 39.7% fall in net debt to £64.9 million painted the picture of a company whose approach to cost control and asset efficiency is likely to continue finding favour with the markets.


Underlying earnings per share (EPS) has risen by almost a quarter to 16.6p and over the past 12 months the Chippenham-based supply chain solution provider has seen share price increase 73.7%. As market conditions improve, ongoing group efficiencies could further leverage Wincanton's gains.

The impact of improved conditions in the UK economy in areas such as construction and higher-value household and home merchandise is noted by Wincanton's management. Revenue growth has been underpinned by a strong programme of renewals such as WH Smith (SMWH) and Valero (renewed for three and five years respectively) as well as new wins from the likes of new market entrant Williams-Sonoma for warehousing and transport operations.

Cost reductions would appear to be the driving force behind Wincanton's growing margins with an increase in underlying margin to 4.4% from 4.2%.

Aside from the success of the group in winning new contracts, holding onto old ones and squeezing the margins, Wincanton is also showing itself adept at addressing its liabilities.

During the year Wincanton closed the defined benefit sections of its pension scheme to future accrual in order to provide greater balance sheet stability at the year end, the scheme's value stood at £110.9 million (compared to the previous year's £148.7 million). Closing net debt for the year was reduced to £64.9 million compared to £107.6 million for the same period in 2012/13.

Wincanton continues to trade well, and broker Numis sees value for money in this stock: 'Following the stronger than expected FY results, we raise our FY'15E EBITA and PBTA forecasts to £49.6 million (£48.9 million) and £26.5 million (£25.3 million). We expect a further progression in FY'16E to £51.3 million and £28.2 million,' says analyst Steve Woolf.

Taking into account progress on debt and pension deficit as well as ongoing benefits from improving macros and sound management, Numis maintains the shares look good value trading on a calendar 2015E PE of 7.

Issue Date: 05 Jun 2014