McBride shines af­ter fix­ing its busi­ness

Clean up with the pri­vate la­bel laun­dry liq­uids-to-mouth­wash maker

Shares - - DISCLAIMER -

Mar­gin im­prove­ments un­der a win­ning trans­for­ma­tion strat­egy and scope for growth are rea­sons to keep buy­ing pri­vate la­bel house­hold-to-per­sonal care prod­ucts play McBride (MCB).

In­vest­ment bank In­vestec be­lieves you could make at least 25% re­turn over the next 12 months, based on its 250p price tar­get.

The £356m busi­ness de­vel­ops and sup­plies prod­ucts for sale un­der re­tail­ers’ own brands, of­ten re­ferred to as pri­vate la­bels or own la­bels. Th­ese span ev­ery­thing from toi­let clean­ers and laun­dry prod­ucts to shower gels and tooth­pastes and are supplied to Europe’s lead­ing gro­cery re­tail­ers.


Un­der chief ex­ec­u­tive Rik De Vos, Manch­ester­head­quar­tered McBride is suc­cess­fully pro­gress­ing its ‘Re­pair, Pre­pare, Grow’ strat­egy to sim­plify the busi­ness and re­turn it to sus­tain­able growth.

It pre­vi­ously strug­gled with poor qual­ity prod­ucts, too many cus­tomers and too much debt.

McBride now ap­pears to be in a bet­ter place de­spite in­put cost in­fla­tion, pro­mo­tional re­tail mar­kets and in­creased com­pe­ti­tion in France and Ger­many.

We high­lighted the at­trac­tions of McBride at 150p in the 21 July 2016 edi­tion of Shares and the stock has sub­se­quently en­joyed a good run. We still see sig­nif­i­cant up­side.

Mar­gins are im­prov­ing fol­low­ing com­ple­tion of the ‘Re­pair’ phase, while McBride is now ex­e­cut­ing its ‘Pre­pare’ phase, which will bridge the path to the ‘Grow’ stage.

Full year re­sults on 7 Septem­ber re­vealed head­line sales up 3.6% to £705.2m, boosted by a trans­la­tion gain on weaker ster­ling.

At con­stant cur­rency, rev­enues were 5.9% lower, a con­se­quence of de­lib­er­ate cus­tomer ra­tio­nal­i­sa­tion, price de­fla­tion and in­creased com­pe­ti­tion in some mar­kets.

En­cour­ag­ingly, op­er­at­ing mar­gins in­creased to 5.9% (2016: 5.3%), mov­ing to­wards man­age­ment’s 7.5% tar­get thanks to cost re­duc­tions and ef­fi­ciency im­prove­ments. Re­turn on cap­i­tal em­ployed rose from 23.4% to 27.7%, within De Vos’ stated 25-30% tar­get.


Sig­nif­i­cantly, net debt re­duced from £90.9m to £75.7m and is still ex­pected to re­duce de­spite higher cap­i­tal ex­pen­di­ture at key sites in the years ahead.

McBride, which has halted the sale of its aerosols busi­ness, has fire­power for acquisitions. We like the ra­tio­nale be­hind its £39m ac­qui­si­tion (4 Sep) of Den­mark-based Dan­lind, giv­ing McBride ex­po­sure to the fast-grow­ing dish­washer tablets mar­ket and ac­cess to a range of Nordic cus­tomers.

McBride looks good value on a prospec­tive priceto-earn­ings ra­tio of 12.2 and 2.5% div­i­dend yield, with the earn­ings mul­ti­ple drop­ping to 10.4 times on 2019’s es­ti­mates.

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