Soft demand and availability issues

McColls Retail has warned that between a soft Easter and continuing availability challenges, trading has been below expectations since the beginning of March (i.e. Q2 FY22). The Morrisons Daily format is still performing strongly, and being rolled out to plan, but the group is guiding to EBITDA no higher than FY21 (£20m pre-IFRS16). Financing discussions are ongoing but "even if such a successful outcome is achieved it is increasingly likely to result in little or no value being attributed to th

Search to appoint new CEO in progress

McColl’s has announced that the search for a new CEO appointment is underway after Jonathan Miller stepped down from his role and from the Board. They are confident of concluding that search successfully in the near future. Crucially, dialogue with their lenders towards a longer-term agreement in relation to the balance of the existing facility is ongoing. It is still believed that a financing solution will be found, and a further update will be made as and when discussions conclude. Our target

Media response and trading update

Banking discussions remain ongoing as previously announced, and it has received the necessary agreement to roll forward its financial covenant test periodically. Prelims are expected to be announced in May, by which time it is hoped these discussions will be concluded. Trading in Q1 was impacted by Omicron/footfall though. While both product availability and margin are strengthening, and the Daily roll-out remaining on track, we have downgraded EBITDA by 17%/11% for the year to Nov’22/23 to acco

Directorate change

MCLS has announced the departure of its CCO, who is leaving for a role at SBRY. On the face of it this appears to be a loss. However, a lot of key commercial changes, namely in relation to its supply and format partnership with Morrisons are now in place, and the commercial team has been significantly strengthened. In Karen Bird the group also has a highly experienced director to take on additional responsibilities.

Strategic progress, and through worst of availability

ND was £7m higher than forecast due to 1) 20 more Daily conversions, and 2) a £5m bigger w/c outflow. The former should deliver EPS upside and the latter should reverse when availability recovers. Today’s update offers encouragement on that, and further key positives on the scope and payback of the Dailys which should provide some support for the shares on just 3x P/E.

Covenant test deferred and Daily roll-out expanded

While short term gearing optics are high after the availability-led downgrades this year, deferral of yesterday’s covenant test should come as a relief today. Banks remain supportive and this is underlined by expansion of the Daily roll-out to 450 conversions by Nov’22 (vs 350 previously). Morrisons is also increasing its contribution to the enlarged programme. Alongside the potentially short-term nature of the well-documented intermittent supply/availability issues, this provides support for th

Supply chain challenges hit availability again

External factors, including the nationwide shortage of delivery drivers, DC labour shortages and insufficient supply of key products, continue to impact supply and availability. Disruption has intensified in Q4, especially in higher margin branded impulse lines. FY EBITDA guidance is now for £20-22m EBITDA; we downgrade by £7m to the low end of the range. We have downgraded by £6m in FY22/FY23 although this does not factor in an acceleration of the M-Daily roll-out, where sales uplifts and RoI h

Placing drives faster Morrisons Daily conversion

MCLS has a leading position in the expanding convenience sector, and a clear growth strategy. Following strong uplifts at recent stores converted to a Morrisons Daily, it has raised £33m to accelerate and expand the scope of the conversion programme. It plans to convert 350 stores (vs 300 target previously) by Nov’22 (a year earlier than the previous plan) and increase the investment in each to c£90k from c£60k to capture a bigger profit opportunity. Sales uplifts range from 20-45% (avg. 20-25%)

Neighbourhood convenience for recovery & growth

McColls is the fastest growing neighbourhood convenience retailer and is on the cusp of becoming something far more relevant and valuable. This follows recent milestones securing both supply and banking support, which facilitate execution of its growth strategy. Margin accretive sales growth has the potential to transform profitability, FCF and gearing – which worsened in the last 3 years. Our 70p 12m fair value estimate is dwarfed by upside scenario analysis, with viable roadmaps to 200p (3 yea

Exciting growth phase on the horizon post covid

FY20 results and current trading highlight the transitional covid lock-down effects on margin mix and costs. However, looking forward MCLS is well positioned in a growth market and, following the recent strategic agreements with its banks and Morrisons, it is now able to execute its margin/mix accretive growth strategy focused on convenience. It is on the cusp of an exciting growth phase. There is understandable near term caution but, if well executed, this plan has the scope to move the dial me

Positive strategic developments pave way for growth

McColls has announced 2 key strategic developments today, with a new Morrisons supply partnership and the extension of its bank facilities. Conclusion of these vital negotiations represents a significant milestone, and allow management to focus on a new and exciting execution phase as it pivots towards a food-led convenience offer. It will also facilitate the delivery of sustainable profitable growth at a time when the importance of neighbourhood stores has never been greater. The news should be

Small Cap Feast

Crossword Cybersecurity PLC* (NEX:CCS)—the technology commercialisation company focusing exclusively on the cyber security sector is investigating the possibility of AIM admission. The Company is proposing to raise up to £2.25 million before the end of December, conditional on Admission. Manolete Partners—leading UK insolvency litigation financing business looking to join AIM raising £16.3m as a placing and £13.1 realised by the selling shareholder at 175p. Market cap £76.3m, expected 14 Dece

Small Cap Breakfast

CentralNic-Schedule 1 from the business operating in proprietary retail platforms selling domain names and associated web presence services including hosting and email on a subscription basis, has acquired KeyDrive S.A which constitutes a RTO. Raising £24m at 52p, combined market cap of £88.7m Trackwise—established business that manufactures specialist products using printed circuit technology. Offer TBA. Due Late July Ovoca Gold (to be renamed Ovoca Bio PLC) - RTO of IVIX, a Russian company de

Weak start to 2018, plans unchanged

Weak start following P&H related issues brings consensus PBT forecasts for 2018 down. Plan to upscale food and benefit from links with Wm Morrison remains the same. The Morrison deal appears to give MCLS the ability to de-risk this period of rapid expansion through widening the bought-in gross margin to finance investment in price and waste required to drive the format forwards.

Hybridan Small Cap Feast 16/06/2022

*A corporate client of Hybridan LLP Dish of the day Joiners: No Joiners Today. Leavers: No Leavers Today. What’s cooking in the IPO kitchen? LifeSafe Holdings, a fire safety technology business with innovative fire safety products, intends to join AIM. LifeSafe has developed what the Directors believe to be market disrupting, eco-friendly fire safety protection products to both protect (via fire extinguishers) and detect (via carbon monoxide, smoke and heat alarms) fires. At the cent

Better placed to tackle the forthcoming headwinds

Tesco’s Q1 trading performance was a mixed bag. The UK and ROI retail business was softer than expected but overall sales were stronger than our estimates. Wholesale business Booker and Central Europe led the pack. The company witnessed market share gains in almost all geographies. However, management has accepted that cost pressure is posing a challenge. The annual profit outlook has been maintained. We will trim the financial estimates slightly.

Delivering Operational Excellence

Decent closure to the year; tougher times ahead!

Sainsbury’s preliminary FY21/22 results were in line with the street expectations. The lfl sales came in at -2.3% yoy, as the positive momentum in clothing was offset by weakness in grocery and general merchandise. Management’s profit guidance for FY22/23 is weaker than the consensus. We expect the retailer to continue with the cost savings plan and reinvest a portion to remain competitive, especially among the big four players. We will be trimming our FY22/23 estimates.

Walmart Inc. - Investment Thesis, Key Drivers, Financial & Price Forecasts, DCF Valuation 8/21

Walmart had another rock solid quarter with a revenue growth of 7.6% in constant currency and a staggering 24.1% growth in operating income at constant currency. Moreover, Walmart Connect, their advertising business in the United States, more than doubled in size as compared to the prior-year quarter, with more than 170% growth in active advertisers. The management provided a series of interesting updates with respect to various innovative initiatives. Their latest investments aim to increase as

Butterfield site visit