Wincanton boosted by e-commerce boom

It seems that every other trading update warns of supply chain issues and driver shortages these days. However, Wincanton (WIN) – a provider of supply chain solutions for the likes of Waitrose, BAE and HMRC – seems unconcerned. Indeed, it’s optimistic. 

The company has exceeded its pre-pandemic profit levels after a tricky lockdown period, with half-year revenue up almost 20 per cent year on year and underlying profit before tax reaching £27.3m. The growth of eCommerce has given the business an impressive boost, with its ‘digital and eFulfilment’ division reporting a 59 per cent increase in revenue. 

Wincanton has now opened a ‘dark store’ for Waitrose – the first outsourced facility of its kind in the UK – along with other ‘eFulfilment centres’ to improve its eCommerce proposition. In order to bolster its presence in this promising market, it has also acquired Cygnia, a speciality mid-market, multi-channel eFulfilment provider.

The company hasn’t put all of its eggs in one basket, however. Wincanton serves a wide array of businesses, and has reported strong public sector growth through new business with HMRC and the Department for Transport, which commenced in early 2021. It is also 10 months into a government contract to provide storage, order fulfilment and delivery of Covid-19 testing kits. 

What about the volatile macroeconomic environment? The group conceded that driver shortages and labour cost pressures continue to have an impact on business operations, and there remains uncertainty around the supply of drivers. But it said its contractual arrangements “provide a good degree of commercial protection”. (Over 70 per cent of the group's revenue is derived from open-book contracts which should shield it from cost pressures.)

It is also trying to recruit drivers by developing its Wincanton Future Drivers programme and funding the cost of training for new applicants.

Investment in new technology is now crucial. The company has deployed its first ‘autonomous mobile robots’ in Nuneaton to improve the speed, accuracy and safety of operations, and plans to roll them out in more warehouses. It also has digital solutions to support recruitment, asset tracking and warehouse performance management in extended pilots. Gross capital expenditure stood at £2.3m in this period.

FactSet gives adjusted EPS of 35.35p for FY 2022, rising to 39.77p in the following year.

Investments hold the promise of reduced fixed costs, thus supporting margins. The changes under way in eFulfilment support Wincanton's business model, while net debt (ex-lease liabilities) is modest. Assuming the company can afford to invest in automation, and can weather short-term driver shortages, this is an interesting opportunity for investors. But with the shares up by two thirds over the past 12 months and trading in line with the 200-day moving average, we see limited short-term upside. Hold.

Last IC View: Hold, 267p, 16 May 2019