Investment Column: Wincanton can drive returns for investors
Low & Bonar; Synergy Health
Friday 05 June 2009
Our view: Buy
Share price: 181p (+14p)
We have never met a company that claims to have anything other than great relationships with its customers.
Wincanton, the haulier, is no different, with chief executive Graeme McFaull saying it is strong client relationships that are key to the group emerging fitter and leaner from the recession. Maybe, but from an investment point of view, we would instead applaud the company for its cost-cutting and efficiency efforts to counter the downturn, which have helped the group to maintain its dividend despite the falling profits that were announced in yesterday's preliminary results.
And the real reason, in our opinion, for the nearly 50 per cent rise in the stock over the last three months is that Wincanton has acted to bring down its debt and reduce its pension deficit. The experts at Arden Partners were so encouraged yesterday that they started advising clients to buy the shares.
We would agree that there is plenty of juice left in the shares, but certainly think Wincanton would be at the riskier end of any portfolio: the company itself expects volumes to continue to fall, until at least the financial year end next March, and while it is right to start renegotiating its debt facilities, which expire next November, a deal is yet to be done with the banks.
The fact that the shares, which trade on a forward price-earnings ratio of nearly eight times, are at an undemanding level would convince us to buy, so long as the company continues to look for more efficiency (maintaining good relationships with clients is an absolute minimum investors should expect). We do still see Wincanton as vulnerable, however, and punters should be prepared to sell on future signs of weakness. Buy.
Low & Bonar
Our view: Hold for now
Share price: 29p (-0.25p)
Nearly a year ago, when we last wrote about Low & Bonar, its chief executive, Paul Forman, said he had no idea why the group's share price was not reflecting its genuinely impressive performance.
In truth, little has changed in the last 12 months and the head-scratching continues. The specialist materials group which supplies fabric and fibres to a variety of industries, including the still buoyant civil engineering sector, issued its half-year trading update yesterday: performance is in line with expectations, the group says, and there is a real kicker from lower raw material costs and tighter cost controls. The shares, argue the experts at Evolution, trade at a discount, and buyers can expect a level of 40p before too long.
All that is very well indeed, but there is no point buying even the most robust company in the world if its shares continue to flounder. We argued that readers should buy last year as the shares looked ludicrously cheap. While the stock suffered, as did most, in the nuclear winter that followed the collapse of Lehman Brothers last September, it is still, for whatever reason, underperforming the market.
True, the wider market may regard the group as being too closely aligned with the still toxic construction sector, even though it is not in practice.
Mr Forman concedes that current shareholders are frustrated by the group's share price performance. We see no reason why those not already on the register should risk the agitation, and although Low & Bonar is a successful and well-run company, we would wait on the stock, until it shows more signs of life.
Our view: Buy
Share price: 470p (+55.25p)
There are a number of so-called, and often self-proclaimed, experts doing cerebral battle over what shape the economic recovery will be. Notions of W, V, U, and bizarrely enough, hippopotamus-shaped returns to financial health have all had their 15 minutes of fame recently.
Those holding shares in the healthcare services provider Synergy know exactly what shape best represents the fall in their investment in the last few months: L. Last October the group, which frankly should be as secure as Fort Knox, issued a profits warning after being hit with a rise in energy and currency costs. The share price dropped from nearly 700p to about 400p overnight, and has not recovered since.
The problems are behind the group, says its chief executive, Richard Steeves, who argues that only further unexpected economic strife worries him. The company issued in-line annual numbers yesterday, prompting Dr Stevens to argue that the shares are at depressed levels; if Synergy can maintain its performance, the stock's 10 per cent discount to others in the sector will soon be eroded, he says.
The stock was up 13.3 per cent yesterday, showing that it has its supporters. We think there is more to come and would back the shares now. Buy.
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