MIDAS SHARE TIPS: Logistics firm Wincanton can deliver returns

British supermarkets are among the most advanced in the world. Their range is larger than many, their processes are slicker and the speed at which goods reach the shop floor is unparalleled. Fresh produce can be delivered to the warehouses overnight and be on the shelves later that same day, packaged and ready to use.

In the past, suppliers transported goods to the stores themselves. Now most items are sent to centralized warehouses and shipped from there, saving time, reducing costs and ensuring freshness. Wincanton is an important cog in the wheel and its shares, at £2.90, are worth a look.

Wincanton manages distribution centers on behalf of grocers from Sainsbury’s to Aldi and the Co-op. For Waitrose, Wincanton provides online deliveries and stores wine, with bottles held in bonded warehouses until needed.

Many general retailers also use Wincanton, including Ikea, B&Q and Primark. And CEO James Wroath counts manufacturing companies among his customers, such as defense group BAE Systems, construction company Breedon and British Salt, which produces salt for a range of domestic and industrial applications.

Larger customers typically own distribution centers and give Wincanton responsibility for managing them. Smaller companies prefer to share facilities with others. Here Wincanton rents warehouses on its own account, where goods are stored and distributed for customers from the family business Fentimans to the more expensive clothing and candle group The White Company.

Wincanton also transports goods across the country on behalf of customers. Deliveries vary from huge trucks full of products to two-man home deliveries of, for example, refrigerators and sofas.

The pace is fast and reliability is critical. Distribution and logistics are crucial to business success, but competition between operators is fierce. Only this year Wincanton lost a substantial contract with HM Revenue & Customs after being outbid by French group Sodexo, parting ways with Morrisons, which moved to Stobart, now part of German giant Muller. But Wroath also signed a substantial five-year deal with Sainsbury’s, which includes 21 locations and more than 6,000 trucks and trailers. Several other companies have been added to the roster, from Primark to New Look, while some customers, such as Screwfix, have worked with Wincanton for decades.

Conditions have been tough for distribution companies as retailers struggle with rising costs and volatile consumer demand. Looking ahead, however, Wroath believes there are significant growth opportunities. Wincanton has been suffering from a yawning pension deficit for years. Now an agreement has been reached with the pension fund trustees, freeing up millions of pounds of cash. Wroath plans to use a good portion of that money to upgrade warehouses with robots and new systems so that products can be transported and delivered faster.

This does not mean that there is a general reduction in staff. Employees can instead be deployed to more interesting tasks and pick up new skills along the way.

Increased automation should also help Wincanton win new customers. Around half of the UK’s logistics are carried out in-house, so retailers and others manage their own warehousing and transport. That should change over time as bosses realize they can offer customers better service by using a specialist like Wincanton.

Wroath points to a £1.5 billion pipeline of potential cases, some of which are at an advanced stage and should be signed within months. Other contracts, including a major NHS deal, are at an earlier stage.

However, Wincanton has certain advantages over others. Founded in 1925, the group has honed its skills over the decades and built relationships with clients across the country.

Wincanton is also the only major logistics company that is still independent and listed in Great Britain.

Rivals include US giant DHL, Muller-backed Stobart and New York-listed GXO, which now owns Clipper.

For companies that want to stay with a company headquartered in the same country as them, that can make a big difference.

This year the two contract losses and the decision to withdraw from less remunerative lines of business have had an impact, with profits set to fall 20 per cent to £50.3 million in the year to next March.

However, the following year profits are expected to rise 12 percent to £56 million, with further growth thereafter.

Wincanton has also used reserve cash to buy back shares, which should boost the share price and boost dividend growth.

A dividend of 13.2p is planned for this year, rising to 13.9p in the year to March 2025.

Midas judgment: Wincanton has seen ups and downs and its share price has fallen from £4.50 to £2.90 in the last two years alone. Today, however, Wincanton is generating money and winning businesses. The outlook is bright and the shares are cheap. To buy.

Traded on: Main market ticker: TO WIN Contact: wincanton.co.uk or 0371 384 2272