Value Plays Or Value Traps? Wincanton plc, St Ives PLC, Connect Group PLC, GVC Holdings PLC And Trinity Mirror plc

Are these companies value plays or value traps? Wincanton plc (LON: WIN), StIves PLC (LON: SIV), Connect Group PLC (LON: CNCT), GVC Holdings PLC (LON: GVC) and Trinity Mirror plc (LON: TNI).

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St Ives (LSE: SIV) is currently trading at a forward P/E of 9.3, which looks cheap. Moreover, the company has nearly doubled earnings per share over the past five years. 

But is St Ives really an undiscovered gem or is it cheap for a reason?

Well, there are two things that lead me to believe that investors may be avoiding St Ives for a reason. Firstly, the company has a weak balance sheet. St Ives’ current ratio currently stands at 0.7, implying that the company cannot cover all liabilities falling due within 12 months. 

Secondly, St Ives’ main line of business, printing and publishing, is in decline, and it seems as if investors are avoiding the company for this reason. Group revenue has fallen by around 10% over the past five years.

Still, the company is expanding into other markets. Since 2010, the company has been developing, through acquisition, an integrated marketing services offering which now very much represents the majority of the business – over 70% of underlying group operating profit at the most recent results in March.

St Ives’ expansion into other digital markets has helped push up gross profit by around 40% over the same period.

Multiple problems

Just like St Ives, newspaper publisher Trinity Mirror (LSE: TNI) is under pressure from the falling sales of printed publications.

In fact, Trinity Mirror’s own management warned three years ago that the newspaper business could cease to exist by 2030.

What’s more, the company’s current pension deficit is greater than £500m. And, it has become clear over the past year or so that Trinity Mirror was deeply involved in the phone-hacking scandal. 

Nevertheless, at present the company is trading at a forward P/E of only 5.7 and price to book value of only 0.8. So, for those willing to take the risk, this looks to be a classic cigar butt deep-value play. 

Changing business

Connect (LSE: CNCT) is yet another company that’s suffering from the decline in physical book and magazine sales. The company is the leading distributor of books and newspapers in the UK, and sales have been underpressure for some time now.

However, the group is expanding into new, high-margin markets. While sales have stagnated over the past five years, pre-tax profit has risen by 90% over the same period.

In addition, Connect’s management has put the company’s dividend payout at the top of its agenda.

The company supports a dividend yield of 5.7% and has increased the payout in line with inflation every year since 2009. The payout is covered twice by earnings per share. Connect currently trades at a forward P/E of 8.9.

Connect’s pre-tax profits are set to rise by a third over the next two years. All in all, the company looks to be an undervalued income stock. 

Gaming company

Gaming company, GVC Holdings (LSE: GVC) currently trades at a forward P/E of 8.8. This low valuation has more to do with the unpredictable nature of the company’s business than anything else. GVC has a cash-rich balance sheet and pays out the majority of its profits to investors.

GVC’s shares have supported an average dividend yield of around 10% per annum for the last five years. 

Weak balance sheet

At first glance, Wincanton (LSE: WIN) looks to be a bargain. The company is trading at a forward P/E of 9.4, earnings are expected to grow by 5% this year and the company is trading at a 2016 P/E of 8.8.

But if you take a look under the bonnet, Wincanton is trading at this depressed valuation for a reason. 

Based on Wincanton’s latest set of results and financial figures, the company’s current ratio stands at around 0.7 — anything below one indicates that the company’s current assets don’t cover all liabilities falling due within 12 months.

What’s more, Wincanton’s shareholder equity is negative. In other words, the company’s liabilities are greater than its assets — not the mark of a health company. On that basis, it’s easy to conclude that Wincanton is a value trap. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended GVC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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