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).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »