Wincanton (LON:WIN) offers equity holders a mixture of growth and returns, well in excess of the prospects implied by its discounted valuation. We forecast three-year 3.0% operating profit growth and 8.6% EPS growth, strong cash generation, a 3.5% yield and low leverage at 0.5x net debt to EBITDA. The fact that, despite its strong outlook, the stock is trading at a 25% discount to its peers is a reflection of its large pension deficit and the fact that investor sentiment is yet to fully recover after its difficult period. In our view, this provides investors with an opportunity to enter the stock before it re-rates. There is 28.5% upside to our fair value of 329p.
A strong financial position from which to grow
Through refinancing, cost cutting and disposals, Wincanton made excellent progress in mending its finances in recent years, the culmination of which was the reintroduction of the dividend in H216. FY17e debt of 0.5 x EBITDA is a significant reduction on recent history and has given management and investors confidence in the underlying business. Balance sheet recovery looks set to continue as the pension deficit is paid down, further bolstering investor confidence in the story.
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