Wincanton — Update 10 November 2015

Wincanton — Update 10 November 2015

Wincanton

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Wincanton

Disposal creates value and increases the focus

Industrial transportation

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10 November 2015

Price

205p

Market cap

£254m

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Share details

Code

WIN

Listing

LSE

Shares in issue

123.7m

Business description

Wincanton is a leading provider of a range of consumer and industrial logistics services in the UK and Ireland. The core logistics and supply chain division is complemented by a number of smaller specialist businesses (Pullman/Containers).

Bull

Core logistics business well positioned in a consolidating sector.

Reduction in net debt could allow a resumption of dividends.

Good exit price for Records Management.

Bear

Pullman takes longer to turn around than expected.

Pension fund deficit still a concern to some investors.

General retail pressures cause problems for the supply chain.

Analysts

Neil Basten

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

Wincanton has announced the agreed disposal of Records Management for an excellent strategic price of £60m (£55.7m net). This will further reduce debt levels and strengthen the balance sheet while allowing the new management team to focus on the core logistics business. With debt now likely to be below the 2x EBITDA management target, we expect discussions about the resumption of dividends to be back on the board agenda.

Good price and limited synergies with core business

Records Management, we believe, is a very good business, reflected in its very high margins and excellent exit multiple of c 11x EV/FY15 EBITDA. However, the board’s desire to further reduce debt levels and give itself more strategic options led to the sensible decision to exit this business given the limited synergies and allow focus on the core logistics business and turnaround of Pullman.

Creates significant value although dilutive to earnings

The disposal creates considerable value for shareholders by realising a strategic multiple (11x EBITDA) for a non-core business at a significant premium to the rating (5x EBITDA) currently placed on the existing business by the market. While the interest saving will not compensate for the ‘lost’ operating profit (£3.5m) near term, this should be more than compensated for by increased focus on the core business and a strengthened balance sheet, and the transaction should be well received.

Stronger balance sheet gives more options

Net proceeds of £55.7m will be initially be used to reduce group debt levels and a £7m contribution to the pension scheme. With year-end borrowings of £57.6m, (although average debt levels are higher), it is clear debt levels will be at much more manageable levels with a further continuation of recent trends and, importantly, should now be below the 2x EV/EBITDA previously targeted by management.

Further grounds for re-rating

Ahead of results next week (12 November), we have included consensus forecasts below, pre-adjustment for the disposal. However, it is clear that the implied rating remains below average and further value can be created if management executes on its strategic plan. The disposal gives confidence that this can be delivered, with the possibility of dividends adding another element to the investment story. An initiation note is planned later in November following the release of interim results.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

1,098

25.6

16.6

0.0

12.3

N/A

03/15

1,107

31.4

21.1

0.0

9.7

N/A

03/16e

1,122

31.7

21.0

4.2

9.8

2.0

03/17e

1,143

35.0

22.8

6.2

9.0

3.0

Source: Historic company / Bloomberg consensus, 4 Nov 2015 (pre disposal adjustments)

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Real Energy — Update 9 November 2015

Real Energy

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