Wincanton PLC's (LSE:WIN, OTC:WNCNF) half-year trading update was reassuring, says broker Liberum, which said next month's results should prove to be a positive catalyst.
The supply chain and logistics services group said trading remained in line with market expectations, with profit expected to be weighted towards H2, reflecting new customer contracts building through the year and seasonality, which the broker noted was due to Christmas occurring in the second half.
Ahead of Wincanton reporting interim results on 9 November, analyst Gerald Khoo said he anticipates these to include an update on the group’s capital allocation plans in the wake of the actuarial surplus at the most recent triennial valuation, which is allowing the group to end pension contributions and is expected to boost free cash flow substantially.
"We expect additional investment in warehouse automation, consistent with the group’s moves to add greater value and to raise the barriers to customers switching providers," Khoo said.
"There should also be scope to return more cash to shareholders, with share buybacks more likely than a higher dividend given the low rating of the shares."
Khoo kept his forecasts, target price of 430p and 'buy' recommendation all unchanged.
The shares, trading for 8.5 times March 2024 forecast earnings, an EV/EBITDA ratio of 4.5 times, with a dividend yield of 5.3% and equity free cash flow yield of 8.4%, the analyst said "we see Wincanton’s valuation as highly attractive".
"We acknowledge that there are macroeconomic headwinds, and the group must continue to rebuild investor confidence after the HMRC inland border contract disappointment earlier this year.
"However, we believe these factors are more than adequately priced in at these levels. News flow on how the group intends to deploy its newly enhanced cash flow could prove to be a positive catalyst."