I last wrote about “the largest British third-party logistics company,” Wincanton (LSE: WIN), in November 2019. Back then, I compared the firm to the banking giant Barclays (LSE: BARC). And although Barclays was paying a fat dividend at the time, my preferred investment was Wincanton.
Barclays crashed hard
My words in November came true faster than I imagined: “If we see a cyclical downturn, I reckon the dividend, which is yielding around 5% at Barclays, could disappear in short order.” Indeed, Covid-19 arrived, drove the economy into recession, and Barclays axed the dividend. The firm’s profits and its share price plunged.
Of course, I didn’t know the pandemic was coming, but I did know banks are vulnerable to the effects of economic downturns. And the valuations of banks such as Barclays suggested the stock market was pricing in a downturn. Indeed, trading had been buoyant for the banks for some time and cyclical plunges in trading begin when profits have been high for a while.
However, the coronavirus crisis affected operations at Wincanton as well. In today’s half-year report the company said the crisis created a temporary, “but significant,” drop in demand for all the firm’s divisions. However, operations have come roaring back since the lockdowns lifted.
But today’s figures show the damage caused by the pandemic. Revenue slipped back by 2.4% compared to the prior year and underlying earnings per share plunged by just over 27%. The directors had suspended the dividend earlier in the year because of the crisis but reinstated it today. The interim payment will be almost 27% down on last year’s though.
A positive outlook for Wincanton
But it’s not all bad news in the figures. The company produced a good cash flow performance in the period and built up its net cash position to just over £63m. That compares to net debt on the balance sheet last year of almost £15m. The directors said in the report the happy outcome was driven by “good working capital management and deferral of VAT, corporation tax and pension payments.”
Looking ahead, chief executive James Wroath said the firm has won several new contracts so far this year. And Wincanton is set to become “a key partner” for some of Britain’s biggest brands and public bodies. On top of that, there’s a healthy pipeline of new opportunities. Meanwhile, he reckons the first-half performance has been “resilient” and he expects results for the full year to be “materially ahead of market expectations.”
The share price has been climbing recently. And at 229p it’s around 11% below its position when I wrote my article a year ago. And with Barclays’ share price at 108p, the stock still languishes around 37% below its level back then. So far, I was right to put my faith in Wincanton and not in Barclays. And I’d buy some of Wincanton’s shares today.
Indeed, the valuation looks undemanding with the forward-looking earnings multiple for the trading year to March 2022 is just under eight and the anticipated dividend yield is almost 4%.