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Sunday share tips: Wincanton, Tesco

Sun 26 November 2023 20:59 | A A A

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No news or research item is a personal recommendation to deal. Hargreaves Lansdown may not share ShareCast's (powered by Digital Look) views.

(Sharecast News) - The Financial Mail on Sunday's Midas column tipped shares of supply chain specialist Wincanton to readers judging that the business's prospects were "bright" and the shares "cheap".

In particular, Midas highlighted a recent agreement between management and its pension fund trustees, which it said would unlock millions of pounds of cash.

Those funds would be used to upgrade and automate its warehouses, in turn helping the company serve its customers more efficiently and to gain more clients.

Indeed, its chief executive officer had put the pipeline of possible business at £1.5bn.

The fact that it was listed in the UK was another potential big plus, as were nearly a century's worth of experience in its trade.

Wincanton had lost two contracts and had exited less profitable businesses, which would were set to push profits down by 20% in the year to next March.

However, a 12% rise in profits was expected for the following year, while share buybacks should encourage dividend growth, Midas said.

The company had also won a "substantial" five-year deal with Sainsbury's that encompassed 21 sites and 6,000 trucks and trailers.

"Wincanton has been through ups and downs, and the share price has see-sawed, falling from £4.50 to £2.90 in the past two years alone," the tipster argued.

"Today, however, Wincanton is generating cash and winning businesses. Prospects are bright and the shares are cheap. Buy."

There might not be anything "flashy" about Tesco, but for the Sunday Times's Lucy Tobin "boring can be beautiful".

In her opinion, financial markets did not seem to be discounting the grocer's latest guidance for full-year adjusted profits from retail of between £2.6-2.7bn.

That compared to £2.4bn for the year before.

Yes, the shares had climbed 18% year-to-date to reach 279p, but that was still below the 300p peaks often seen before the pandemic.

Furthermore, its price-to-earnings multiple of 11 was as low as it had been for nearly a decade.

She conceded that high home energy bills and mortgages continued to cloud the outlook, while the cost of living crisis continued.

Yet Tesco was recovering some sakes from the discounters and its Finest range was taking some share from Waitrose and M&S.

It also had a healthier balance sheet than the likes of Asda and Morrisons, its retail free cash flow had improved and its pension liability was negligible.

Then there was Tesco Bank - which might be sold - and the grocer was carefully spending more on freeholds to cushion the impact of future inflation-linked rent reviews.

"There's nothing flashy about Tesco and its sensible management, but boring can be beautiful," said Tobin.

"Add the supermarket's shares to your basket."

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