Driving a bargain

BACK in the age when I was wearing short trousers (not a pretty sight) there was a food group called Unigate, which was not much of a sight either.

It owned a sprawling set of assets including Cow & Gate milk, St Ivel cheese, sliced meats and a fleet of trucks. This sparked talk about a break-up bid to realise value.

It seemed a good idea at the time. But poor old Unigate ran into one storm after another. The meat side was sold at a thumping loss, dairying was remorselessly squeezed by its supermarket customers and finally sold too.

The group, now called Uniq, focused on processed meals and began a recovery. Finally this month, the long mooted bidders appeared.

This roundabout route brings us to Wincanton, the trucks arm floated out of Uniq in May 2001. Since then sales have more than doubled to £1.7bn.

The shares have not kept pace, though they spurted on Friday as the group clinched a new 10-year contract with Glaxo.

It is now valued at £280m. The Glaxo deal is worth much more than that in sales terms. Wincanton has a string of other blue-chip customers - Argos, Kingfisher, Tesco, Asda, Rover, British Airways - and 350 sites, making it a leader in automated warehouses.

But markets are tough and profits growth has been modest. In the year to March last, earnings per share fell, a poor reward for the £153m acquisition of P&O's trans-European operations which took it into Continental markets.

In cash flow terms, the deal worked better. Tim Richmond at broker Arden reckons Wincanton hauled in £105m cash last year.

This halved group debt from £150m to £75m. The caveat is that underlying debt cannot always be judged from the balance sheet date. In addition, the £310m pension fund had a £60m deficit in March.

What makes the sector interesting is bid activity. TDG (Transport Development Group) is in merger talks with Scots group Salvesen, whose shares have bounced from 46p to 64p.

In June, the £2bn Exel group forked out £328m cash for Tibbett & Britten, beating off a rival suitor by paying a steep 23 times earnings. It justified the price by pointing to hefty cost savings.

Wincanton is keen to stay independent. But there are bigger players roaming the highways. Germany's Kuehne & Nagel, with which Wincanton operates joint ventures, is only one of the potential buyers.

At 242p the shares sell at 14 times earnings and yield 4.5%. A take- out price of 18 times would value them at 315p. Tibbett's exit multiple of six times operating earnings would produce even more.

History shows that bidders often take the slow lane, but Wincanton's market value is just two months' sales. Cheap.

Three ways to sock it to you at Soco

SOCO International is the oil sector's forgotten stock of 2004. In a sector full of shooting stars, it has improved by less than 10% to 328 1/2p.

The reason is simple. It hit £4 two years ago as hopes soared for its offshore Vietnam drilling on a block between two major discoveries.

But an important well proved inconclusive and Soco had to go back and puzzle over its seismic studies for clues to the shape of an oil-bearing reservoir. Now it is ready to return, with up to six wells over 15 months from January.

In Mongolia, Soco has 85% of a big licence area and a string of small finds. They add up to a modest 500 barrels a day, but this could be stepped up sharply if it brought in a powerful partner.

The region adjoins oil-hungry China, which is drilling extensively on its side of the border. A deal seems sensible.

In Yemen, Soco has prospects it sees as similar to Vietnam. The next drilling news is due in November.

The pace is picking up and its well-regarded team is due a bit of luck. Worth a punt.