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This morning’s FY25 trading update from McBride reflects a continuation of solid trading for the group, with operating profit reported to be in line with expectations, consolidating the strong turnaround seen in FY24. Revenue for the year was 0.7% higher YoY (CC basis), reflecting a 4.3% increase in volumes, offset by a reduction in pricing. With margins maintained at rebased levels, operating profit is expected to be ca. £62.5m, significantly ahead of results prior to FY24, leading to net debt of £105.2m (Zeus est. £113m inc. leases, FY23: £131.5m). Ahead of FY25 results in September, we make minor adjustments to our FY26 and FY27 forecasts this morning, reducing revenues on pricing/currency impacts but leaving adj. PBT unchanged on higher margins. While pricing and currency may present a headwind to short-term revenue growth, we expect McBride’s improving funding position and high rates of free cash flow should support long term value accretion through both internal and external investment.
McBride plc
McBride is now building a strong track record of consistent earnings performance. The balance sheet continues to strengthen and we anticipate the dividend restarting at the FY. We maintain our Buy rating and 190p TP.
McBride (MCB) has released a trading update covering FY25 (to 30 June). Constant currency [cc] revenue growth was +0.7%, after +2.9% in H1, implying -1.5% in H2. Total volume was +4.3%, after +5.9% in H1, implying +2.7% in H2. We estimate that price/mix was down c.4% in H2, having been down 3% in H1. Private label volume was +1.4%, after +2.4% in H1, implying +0.4% in H2. Contract manufacturing volume was +49%, after +69% in H1, implying +29% in H2. MCB said at the H125 results in February that the shift from brands to private label had slowed. This has now plateaued, having increased significantly over the last few years, and MCB’s average market share was consequently flat in H2. As reflected in MCB’s numbers, the price/mix environment has become slightly more challenging, with some retailers wanting cheaper formulations and seeking support for promotional campaigns. MCB has responded, but protected its own profitability. Its competitiveness on price, combined with high and rising service levels, has enabled it to continue winning business, which should start to come through during FY26. Our profit forecasts are unchanged for FY25E and beyond, despite a somewhat tougher market and an FX headwind. Our FY25E revenue forecast falls by 3% to £926m, reflecting the strength of Sterling against the Euro and slightly more challenging price/mix. Our EPS forecasts fall slightly as we increase our assumption on the number of shares in issue. Cashflow remained strong, with net debt falling by £26m in FY25 to £105m, better than our previous forecast of £110m. As previously announced, MCB intends to reinstate dividend payments with respect to FY25.
MCB delivered 2.9% revenue growth and 7.9% operating profit growth (both in constant currency [cc] terms) in H125 (to 31 December). The revenue growth consisted of 5.9% volume growth and cc price/mix of -3%, as MCB passed on moderating input costs to its customers. Within this, private label volume growth was 2.4%, despite the shift from brands to private label slowing as brand owners increased promotions and advertising support. The strongest volume growth came in contract manufacturing, up 69%, as MCB benefited from two new (multi-year) contracts with branded FMCG clients. We upgraded our FY25E and FY26E operating profit forecasts after the January trading update, from £60m to £63m for both years, and we leave these forecasts unchanged. However, lower interest and tax assumptions lead us to upgrade FY25E EPS by c.6% and FY26E EPS by c.4%. Looking at the divisional detail, the only apparently disappointing profit performance came from Liquids, but this was largely due to investments that raised the short-term cost base in the expectation of a strong return. As previously disclosed, MCB plans to pay a dividend for FY25, indicating confidence in the sustainability of the current level of profitability, the strength of the balance sheet, and the high level of cash generation (net debt fell to £117.6m at the H125 stage, from £131.5m at FY24, with net debt/EBTDA only 1.3x). We increase our FY25E DPS forecast to 3.0p (previously 2.5p). Our new target price of 179p is based on 8.1x FY25E PE, which would be a 10% discount to the 9x average rating in the five years before the input cost surge in FY22. We think that MCB is a better company now, and that this is therefore a conservative approach, yet it still implies c.25% upside even after the recent share price move.
Interim results from McBride this morning reflect a strong period of trading, in which the business maintained significantly improved operating margins, grew volumes and continued to reduce net debt. As guided at the company’s January trading statement, H1 revenues were up 2.9% (CC basis), driven by a 5.9% volume increase, in part reflecting the impact of two major contract manufacturing contracts. Having delivered a significant improvement in operating margins in FY24, MCB continued to maintain margins at these elevated levels in H1 25, with adjusted operating profits of £32.0m 2.4% ahead YoY, and margins increasing to 6.8% (H1 24: 6.5%). With Management confirming that trading remains in line with expectations, we leave our recently upgraded forecasts unchanged this morning. While shares have performed well since the company’s highly encouraging trading statement, we see upside in the shares towards our 180p price target as the group continues to deliver and the shares deservedly rerate from current levels.
This upgrade comes in addition to the 12% increase at the January trading update, with the potential for further upside if current trends continue. The shares have performed well, but are still on 6.5x PE and 4x EV/EBITDA. We reiterate our Buy rating and increase our TP from 180p to 190p.
McBride (MCB) has released a trading update covering H125 (to 31 December). It expects to report c.8% growth in operating profit on a constant currency (CC) basis in H1, which we estimate will be partially offset by a c.3% FX headwind, implying c.5% actual operating profit growth, to c.£32m. CC revenue was +2.9% in H1, with volumes +5.9% and CC price/mix -3%. Private label volume growth was +2.4%, despite a moderation in the shift from brands to private label as brand owners increased promotions and advertising support. The strongest volume growth came in contract manufacturing, up 69%, as MCB benefited from two new (multi-year) contracts with branded FMCG clients. The price/mix decline of 3% is to be expected in an environment of moderating raw material prices. Although MCB has stated that its outlook for FY25 is in line with its internal expectations, we suspect that these are ahead of our previous forecast, based on the strong performance in H125. We consequently upgrade our FY25E (and FY26E) operating profit forecasts by 5%, from £60m to £63m. Strong cash generation continued, with net debt falling to £117.6m, from £131.5m at the end of June. We now forecast net debt to fall to £112m at the FY25E year end, £3m better than our previous forecast of £115m. The combination of strong operational performance and cash generation has allowed MCB to announce its intention to reinstate dividend payments in relation to the current financial year. We forecast a dividend of 2.5p in FY25E, rising to 3.0p in FY26E, which would offer a dividend yield of 3% in FY26E. We think that this further normalises the investment case and leaves the shares, which trade on under 5x PE, looking materially undervalued.
Today’s update from MCB highlights good progress in the first half with an 8% rise in adj. operating profits notwithstanding a strong prior period and also flags ongoing strong trading performance. The company is the European market leader in own-label cleaning products such as liquids, unit dosing and powders. Own-label continues to grow, benefiting from further market penetration opportunities as consumers continue to look for enhanced quality at a keener price, while MCB’s contract manufacturing activity saw a 69% volume uplift in H1 on the back of new contracts with major clients. Following the successful completion of refinancing in November ’24, MCB has this morning announced its intention to reinstate the dividend, details to be announced with the full year results. Given good progress in H1 and with the company trading well, we upgrade our FY25E, ‘26E and 27E PBT and EPS forecasts by c.4% respectively. We continue to view the rating, at c.4.7x PE on our revised forecasts, as anomalous and remain Buyers with a raised price target of 180p (was: 175p).
McBride has continued its impressive run of upgrades, and market trends are strong and look set to continue. The balance sheet is strengthening and on new number, the shares trade on c.5x PE and 3.4x EV/EBITDA, which looks highly attractive. We upgrade our TP to 180p and reiterate Buy.
McBride (MCB) has built a strong platform for future growth through (1) taking market share in its existing activities, (2) expanding into new products or geographies and (3) new wins. Profitability has risen dramatically in recent times; and there are multiple M&A opportunities. The company is the European market leader in own-label cleaning products such as liquids, unit dosing and powders. In its core own-label activity, the company sees many more opportunities to penetrate existing and new global markets. Underlying market forces include regulation, which is driving further market consolidation, innovation, and demographics. Cost-disciplines are robust and MCB has made a good start at achieving its current £50m cost-saving target. The company delivered strong H1-24 results in September although the shares have done well, it remains undervalued in our view at its current 4-5x PE. We initiate with a 175p price target and a Buy recommendation.
McBride (MCB) has released a short trading update ahead of its AGM. We last heard from the company on 17 September, so this statement covers an incremental eight weeks of trading. MCB expects operating profit for FY25 to be in line with market expectations, which are currently at £59.7m. Fiscal YTD revenue was ahead of the comparable period. We only forecast modest (1.6%) revenue growth in FY25E, so this at least supports that forecast. As already flagged at the FY24 results in September, MCB has “an encouraging healthy pipeline of new product launches and business wins”, which also helps to underpin our estimates. Input costs “remain in line with forecasts made at the beginning of the financial year”. However, MCB notes the potential for increased volatility in commodity markets. Although it has proved adept at recovering input cost inflation over the last two years, the potential for at least some short-term impact on profitability cannot be discounted, hence our relatively cautious FY25E profit forecasts. MCB’s progress in paying down debt continues in line with its expectations. We forecast net debt to fall from the £131.5m reported at the end of FY24 to £115m at the FY25E year end. MCB is also on track with its refinancing plans, which are “expected to complete in the coming weeks”.
Consumer conditions continue to be favourable and we have increased confidence in the outlook and balance sheet. The shares are trading on c.6x PE and c.4x EV/EBITDA, which looks highly attractive. We reiterate our Buy rating and 175p TP.
McBride (MCB) has reported FY24 results to 30 June. It had already issued a detailed trading statement so there are no surprises in the key figures. Revenue was £934.8m, up 5.2% (or 6.2% at constant currency). This was volume-led, with overall volumes up 5.7% and private label volumes up 7.2%. Although contract manufacturing volumes were down c.2%, they were up 13.4% in H2 due to the commencement of a substantial new contract in fiscal Q4. Operating profit was £67.1m, a transformation in performance after £13.5m in FY23 (and a loss of £24.5m in FY22). Net debt was £131.5m, £35m lower than the previous year, taking net debt/EBITDA to 1.5x versus MCB’s target of “less than 1.5x”. MCB has made a good start to FY25, with volumes in line with its expectations. Although there are signs of increased activity from the branded players, including both higher advertising spend and more promotional activity, “private label demand remains robust”. We infer that private label is broadly holding its market share (at an elevated level, after a period of significant gains) in an overall market that is seeing volume growth. MCB’s contract manufacturing business is “maintaining the momentum of the fourth quarter”, with the “good pipeline of new product launches and business wins” weighted to this side of the business. This progress is being facilitated by a significant improvement in customer service levels, which increased 2.5ppts year on year, and 3ppts in H2 versus H1, further enhancing its reputation with customers, and MCB is looking to continue improving this measure. Our forecasts are unchanged; our estimates of £60m of operating profit in FY25E/26E would retain most of FY24’s margin gains and could be conservative, particularly given the momentum in contract manufacturing.
Consumer conditions remain favourable, the company is in far better shape than this time last year, and we have greater confidence in the outlook and balance sheet. We maintain our target price of 175p and Buy recommendation.
McBride (MCB) has released a trading update covering the 12 months to 30 June 2024 (FY24). Performance has been in line with expectations, and we make no changes to our profit forecasts for FY24 or subsequent years. FY24 revenue grew by 5.2% in absolute terms, implying £935m, and we reduce our forecast accordingly from £965m (a 3% cut). We had slightly underestimated the impact of MCB lapping previous price increases, and there was also a small currency headwind. Private label volume growth remained positive in fiscal Q4 but slowed (from 9.7% at 9M24 to 7.2% at FY24) as the previous substantial market share gains moderated, as had been expected. This was partly offset by very strong growth in contract manufacturing volumes in fiscal Q4 as MCB won a substantial new contract. Total volume growth slowed from 6.5% at 9M24 to 5.7% at FY24. Constant currency revenue growth was 6.2% in FY24. Net debt ended the year at £131.5m, which is £14.2m below the half year figure and £35.0m below the FY23 figure. This reflects MCB’s strong operational performance and focus on debt reduction. Although it is slightly higher than our previous forecast of £127m, this is purely due to timing issues, and our FY25E net debt forecast of £115m is unchanged. We take this opportunity to refresh our target price, which increases to 159p (previously 127p). Our previous target price was based on a move to 6.5x FY25E PE, which would represent a near 30% discount to the c.9x average in the five years before the spike in input costs in 2021 pushed MCB into significant loss in FY22. Our new target price is based on a further re-rating to 8.1x FY25E PE, a 10% discount to that c.9x historical average. It implies 12% upside from the current share price, and we remain Buyers.
In good shape – the company is in far better shape and we have greater confidence in the outlook and balance sheet. We increase our target price from 130p to 175p and retain our Buy recommendation.
The current trends have been sustained given the ongoing pressure on consumer budgets and McBride continues to outperform the market. The rating is still low compared to historic levels. We increase our target price from 120p to 130p and maintain our Buy rating.
Current trends are favourable and in our view likely to persist. Further, the group is outperforming the market. The company’s rating is low against historic levels and against peers. We maintain our Buy rating and 120p target price.
MCB is the no.1 European private label producer in household cleaning products, the market leader in the UK, France, and Italy (with Germany expected to follow), and the only genuinely pan-European player in the category. Private label has grown strongly, gaining 5% points of share since June 2022 and 8% points since 2019. MCB expects private label to hold onto these gains, with history suggesting that consumers remain price sensitive for some time after a recession, and with the quality gap with brands closing. MCB has aggressive divisional volume growth targets for FY23-27 (Liquids 4%, Unit Dosing 3-4%, Powder flat, Aerosols 10%, and Asia Pacific 8%). If achieved, the Group would deliver ahead of its 2% revenue growth target, even if it reinvests some of its gains in lower pricing. It sees opportunities for growth where either MCB or the private label category under-indexes (e.g., with the discounters and in the laundry category respectively), and through innovation (unit dosing leads the way, with a third of its SKUs <1 year old). MCB is determined to maintain a higher profit level, with operating profit consistently in the £55-65m range (vs our FY25E/26E forecasts of £54m/£56m). This will be supported by the Transformation agenda, which aims at annualised benefits of £17m by FY28, with the potential for more from additional investment, for example in increased automation. MCB’s rapidly improving balance sheet (net debt/EBITDA 1.5x in FY24E on our forecasts) gives it options. Combined with an expected refinancing later this year, dividends become a possibility from FY25. There is also scope for consolidation, with competitors often second-generation family owned. MCB is alert to opportunities for M&A within the upper tier of the industry.
McBride has released H124 results to 31 December 2023. Constant currency revenue growth was +9.9%, as reported in its recent trading update. Volume growth was +6.4% and private label volume growth was +10.1%. This implies price/mix of c.3.5%, driven by price increases in FY23. Although MCB’s revenue growth slowed in the final two months of H124, the outlook for H224 and the rest of calendar 2024 is positive. Demand in January and February has been in line with H124 and “favourable trends for private label markets are expected to continue throughout [calendar] 2024”. Moreover, contract wins will start to support revenue growth from fiscal H125. We therefore nudge up our FY24E and FY25E revenue forecasts. We upgrade our FY24E operating profit forecast more materially (by 17%) from £53m to £62m. MCB delivered operating profit of £30.5m in H124, versus a loss of £1.3m in H123. Our new FY24E forecast implies an operating margin of 6.4%, a strong recovery from only 1.5% in FY23 (and a significant loss in FY22). Our FY25E operating profit upgrade is somewhat lower given the level of uncertainty around input costs, but still material at 8% (from £50m to £54m), implying an operating margin of 5.5%. FY24 net debt/EBITDA is now expected to be “below 2x” and our net debt forecast improves to £130m (previously £136m), implying just over 1.5x. We increase our target price to 112p, based on our higher forecasts and an unchanged methodology (6.5x FY25E PE). This would still be a near 30% discount to the c.9x average in the five years before the spike in input costs in 2021 pushed MCB into significant loss in FY22.
Strong performance – We see the current trends as likely to sustain given the pressure on consumer budgets. The shares have responded but the rating is still low. We increase our target price from 108p to 120p and reiterate our Buy rating. The company is due to hold a CMD on 13 March.
Strong performance – We see the current trends as likely to sustain given the pressure on consumer budgets. The shares have responded but the rating is still low. We increase our target price from 100p to 108p and reiterate our Buy rating.
McBride (MCB) has released a trading update covering H124 (July-December 23). It had already reported on the first four months of that period, so the incremental months covered are November and December. In July-October, as previously disclosed, total volumes were +8.2% and private label volumes +11.7%. In July-December, total volumes were +6.4% and private label volumes +10.1%. Assuming that the months are equally sized, this implies that November/December total volumes were +2.8% and private label volumes +7.0%. This slowdown reflects a levelling-off of the shift to private label products in MCB’s categories, but still represents robust yearon-year growth. Constant currency revenue growth in H124 was +9.9%, implying c.3.5% of price/mix, driven by the FY23 price increases. MCB expects to report H124 operating profit “slightly ahead” of its previous expectations and we upgrade our FY24E EBIT forecast from £50m to £53m. Our FY25E and FY26E EBIT forecasts each also increase by £3m. MCB continues to benefit from a favourable supply/demand balance, putting a premium on its ability to supply customers reliably, and helping it to retain previous price increases. This is necessary in an environment where, although some input prices have eased, it continues to face increased labour, energy and financing costs. We increase our target price to 100p (previously 72p), based on a move to 6.5x FY25E PE (previously 5x), justified by the sustained recovery. This would still be a near 30% discount to the c.9x average in the five years before the spike in input costs in 2021 pushed it into significant loss in FY22.
McBride (MCB) has released a trading update ahead of its AGM later today. It covers the first four months of FY24 (July-October). Total volumes were +8.2% and private label volumes were +11.7%. MCB had already disclosed that, in fiscal Q1, total volumes were +8.0% and private label volumes were +10.8%. On the assumption that the months are the same size, this would imply that October total volumes were +8.8% and private label volumes were +14.4%. The shift to private label products in MCB’s categories continues, helped by the cost-of-living crisis, and underpinned by the lack of any real functional difference versus the equivalent branded products in most cases. Although we are wary of extrapolating the figures from one month, this clearly represents a very strong start to fiscal Q2, and the statement suggests that momentum has continued into November. We therefore upgrade our FY24E revenue forecast from £950m to £970m and our FY24E EBITA forecast from £43m to £50m. Our FY24E net debt forecast falls from £145m to £140m. MCB is currently benefitting from a favourable supply/demand balance, making its ability to supply its customers reliably highly valued, and perhaps mitigating any downward pressure on pricing from the stabilisation of some input costs. In our view, this is unlikely to change materially in the short and medium term, with the losses incurred by the industry in 2021/22 discouraging any increase in physical capacity. Nonetheless, to be prudent, we upgrade our FY25E EBITA forecast more modestly, from £45m to £47m. We increase our target price to 72p (previously 60p). This is based on a move to 5x FY25E PE (previously 4.5x), justified by this further encouraging news.
Transformation – We see the current trends as likely to sustain given the pressure on consumer budgets. The shares have responded but the rating is still ridiculously low in our view. We maintain our Buy rating and increase our target price from 85p to 100p.
Transformed position – There has been a marked change in market conditions, and the current trends should sustain. In our view the rating is ridiculously low, given the improved profits and balance sheet. We upgrade from Add to Buy and increase our target price from 50p to 85p.
McBride (MCB) has released a trading update covering Q124 (July-September). At its FY23 results one month ago, MCB said that its strong momentum continued into Q124. Today’s statement discloses that Q124 volumes were +8.0% overall, with private label growth of +10.8%, driven by the continued shift to private label products in MCB’s categories (helped by the cost-of-living crisis). Given its high level of operational gearing, MCB was consequently c.£8m above its internal EBITA forecasts in the quarter. MCB is careful to note the high level of uncertainty around input costs given the potential for world events to create volatility in commodity markets. However, to be £8m ahead of schedule after only one quarter clearly warrants a material upgrade. We increase our EBITA forecasts for FY24E by 65% (from £26.0m to £43.0m) and for FY25E by 61% (from £28.0m to £45.0m). Our PBT upgrades are significantly greater in percentage terms given MCB’s high level of financial gearing. On our new FY25E forecasts, MCB trades on only 2.4x PE and 2.9x EV/EBITDA. We increase our target price to 60p (previously 40p) and our recommendation to BUY (from Hold). This is based on a re-rating to 4.5x FY25E PE, still a 50% discount to the c.9x average that MCB traded on in the five years before the huge spike in input costs in 2021 pushed it into a significant loss in FY22. We do not expect that to be forgotten immediately, and the company remains highly geared, both operationally and financially. However, its operational performance has been in line with or ahead of expectations for some time now, building confidence in the recovery, which should be increasingly supported by its Transformation programme.
McBride (MCB) has released its FY23 results to 30 June. It had already issued a detailed trading update covering this period on 14 July, so there are no major surprises in the results. MCB finished FY23 strongly, based on a favourable market environment for private label products and category share gains. Volumes were +12.7% in Q4, taking the FY23 figure to +5.6%. Revenue was £890m, in line with our forecast of £889m. Constant currency revenue growth was 28.4%, implying price/mix improvement of 22.8%. Operating profit was £13.5m, 4% above our estimate of £13.0m. PBT was £0.3m better than our expectation of a loss before tax of £0.5m. MCB had already disclosed that net debt ended the year at £166.5m. Looking to FY24E, we had already upgraded our operating profit forecast to £25.0m (from £22.8m) in July. We nonetheless nudge our forecast up further, by £1.0m (or 4%), to £26.0m. Our PBT forecast also increases by £1.0m (or 8%) to £13.5m. Our EPS forecast increases to 5.5p (previously 5.1p). Our FY25E forecasts increase by the same absolute amounts. The upgrades to our FY24/FY25E forecasts are based on the expectation that the favourable environment for private label products continues for the time being. With the economic situation remaining tough, there is no obvious reason why consumers would switch back to brands, when there is little or no quality difference. It seems more likely that the shift to private label will continue unless the pricing behaviour of the brand owners changes significantly in an attempt to protect their volume share. The removal of going concern uncertainly should be positive for sentiment, as well as potentially for credit insurance and extended creditor terms.
Helpful consumer conditions and strong operational execution have supported the top line, which should ensure margins continue to improve. This should enhance cash flow and put the balance sheet in a stronger position. The rating continues to underplay the recovery and we increase our target price from 35p to 50p.
Helpful consumer conditions and strong operational execution have supported the top line and as cost inflation abates and self-help beds in, margins will continue to improve. We are upgrading to an Add recommendation given the positive trends and attractive valuation.
Improvement coming through – McBride’s focus on securing price increases and delivering on customer service is driving improved profitability. More needs to be done, but the company is on the right track.
McBride (MCB) has released a positive unscheduled trading update for FY23 (to 30 June). Volume performance has been better than previously anticipated, driven by new business wins, improved customer service levels, and a favourable market backdrop for private label products. Although it remains challenging to obtain the price increases required to offset previous cost pressures, and the overall level of inflation remains high, some raw material prices have stabilised, which offers some slight relief on the margin. MCB is expecting FY23 operating profit to be £5-10m better than consensus forecasts, which (before this update) were at £3.0m. It also expects the reported loss before tax to be £5-10m better than consensus loss of £27.3m. We expect this improvement to be margin-driven and leave our FY23E revenue forecast unchanged. We now assume an FY23E gross margin of 27.7%, still down 40bps versus FY22, but 70bps better than our previous assumption of 27.0%. This translates to an operating margin forecast of 1.0% (previously 0.3%) and an operating profit forecast of £9.2m (previously £3.0m). Our profit upgrade for FY24E is more modest, for three reasons. First, we were already forecasting a significant improvement in operating profit, to £20.0m. Second, securing the required price increases remains challenging. Third, although there has been some recent easing of raw material price pressure, the outlook remains uncertain. We leave our FY24E revenue forecast unchanged and increase our gross margin assumption by 30bps (from 28.5% to 28.8%). This translates to an operating margin forecast of 2.5% (previously 2.2%) and an operating profit forecast of £22.8m (previously £20.0m). Finally, MCB expects FY23 net debt to be £15-20m lower than consensus of £201.5m. Our new net debt forecast is £180.5m (previously £202.1m).
McBride has witnessed improving momentum in its business during H123, with the company returning to positive adjusted operating profit during the last two months of the period. This trajectory has continued into the start of H2 and is coupled with some early signs of stabilisation in certain input costs and higher volumes from new business wins. The current retail environment is favourable as cost-conscious consumers turn to private-label products, and McBride has gained share of this segment. The company is launching a Transformation programme, targeting £50m of cost savings over five years. Energy costs remain high, as does general inflation, and the macroeconomic outlook for the consumer remains subdued. This results in a continued uncertain environment for McBride, though management’s full year expectations remain on track.
McBride (MCB) has reported its H123 results to 31 December 2022. Revenue growth was 32% (30% at constant currency), as set out in the recent trading update. The operating loss of £1.3m was consistent with the company’s guidance that it would make a small loss. As previously disclosed, it returned to EBITA profitability in the last two months of the period. Revenue growth in H123 was largely led by price, as MCB recovered cost inflation, but there was some volume growth (+2.6%) in its private label business. Consumers traded down to the private label category and MCB gained share within it. Its contract manufacturing volumes fell by 14% as consumers traded down from branded products. MCB delivered a further £97.1m of price increases in the period and saw inflation add over £87.6m of further cost rises. The consequent EBITA loss of £1.3m was much improved versus the £14.8m loss in H122. The commentary on the ongoing pressure from rising costs remains cautious, with MCB noting that “many raw material costs remain historically high” despite having stabilised. Energy and employment costs “continue to apply further inflationary pressure”. Additional mitigation, including price increases as well as product engineering and cost reduction, will therefore be required. We make no changes to our EBITA forecasts for FY23E (£3m) or FY24E (£20m), although we do reduce our PBT forecasts due to higher finance costs associated with the refinancing and rising interest rates. Looking further forward, MCB has reiterated its target of £50m of benefits from its Transformation programme over the next five years, facilitated by the move to a new ERP system. This follows the Compass programme, which will conclude at the end of FY23 and is on track to deliver £20m of benefits. Given some degree of uncertainty remains, we opt to retain our Hold. Our TP remains at 40p.
The company has continued to deliver on its recovery plan. If the cost environment continues to stabilise and the positive volumes trends continue, we see upside potential to numbers.
Making progress – the position looks more comfortable with financing secured and a return to profit at the EBITA level. Importantly, customer service levels have improved significantly, which means that the company is in a better position to maintain contracts and to potentially add business if others are struggling. However, the inflationary environment is relentless and so the company will need to be on the front-foot to offset the pressure on margins.
McBride (MCB) has released an H123 trading update covering the six months to 31 December 2022. MCB performed in line with expectations during the period. It delivered revenue growth of 31%, slightly ahead of the 29% reported in the first four months. This was largely driven by price increases as MCB continued to pass through input cost inflation. However, there was also modest volume growth, helped by trading down to private label products. Customer service levels improved “significantly” and cost efficiency initiatives continued. MCB expects to report a small adjusted EBITA loss (before exceptional items) in H123, in line with our expectations. Encouragingly, it returned to profitability on this measure in the final two months of the period. This provides support for our forecast of a return to EBITA profitability in H223E, a small EBITA profit for FY23E, and a return to more normal profitability in FY24E. However, with some raw material costs continuing to increase, and MCB’s energy and labour costs also rising, this will require further price increases, product engineering and cost savings. Net debt of £169.4m was slightly higher at the period end than in June 2022 (£164.4m) and liquidity of £56.6m was slightly lower than the previously disclosed monthly average of £61m, due to the (small) losses incurred in H123. The liquidity level is comfortably above its banking covenant of £15m. We increase our FY23E revenue forecast by 7% based on the 31% growth delivered in H123 and now forecast 29% growth for the full year. This revenue upgrade rolls into the subsequent years. However, with this being driven by price increases that are designed to pass through input cost inflation, we make no changes to our profit forecasts.
McBride reports that after its first 4 months trading, it remains in line with expectations. We make no changes to forecasts today. There is reassuring news on volumes; despite significant price increases implemented over the past year (annualising at £200m), group volumes are slightly ahead (low single digits) after some new business wins. McBride is gaining share, as European private label volumes are modestly down (by c4%), although branded volumes are down by more (c8%). This would support the view that people are trading down to private label. The factories are operating well and service levels are much improved - back above 90% - following the appointment of a new logistic manager. The group is continuing to work on restoring margins. In the YTD, costs have been a little higher than expected, but this has been offset by cost control elsewhere, hence the trading is in line with expectations. The group does need to secure further price rises in the coming months, but the magnitude of the rises is now much lower than in FY22. Customers are also increasingly asking McBride to re-engineer products. We expect to see a progressive recovery through FY23E. The new volume wins will contribute more fully in 2H and the group is hoping to have secured further mitigation/price increases against a (hopefully) stabilising cost picture. We are forecasting a small FY EBITA, with the recovery weighted to 2H. The aim is to exit FY23 with margins back to the more standard 3-4%. The group’s funding has stabilised following the refinance. Liquidity averaged £61m across the 4 months – this is comfortably in excess of the minimum required of £15m.
AGM update as expected Trading YTD has been in line with expectations. Overall volumes for the Household Product market have declined; however, higher pricing, new business wins and switching to private label has helped drive strong growth in McBride’s revenues, which are +29% in the first four months of the year. The company is mitigating higher material costs and the improving trajectory is continuing. There are still pockets of material price increases in certain categories, which are likely to require further price increases. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
McBride has delivered FY results in line with expectations. EBITA losses were £24.5m, but the rate of loss reduced from £14.8m in 1H to £9.7m in 2H. Importantly, these expectations were originally shared by McBride at the start of this calendar year, so, given the challenges in the interim, this shows the group has performed to plan, recovering annualised inflation of c.£200m. The largest losses arose in liquids, with smaller losses across other product groups. Asia delivered a small profit. McBride also confirms today that it has secured a firm funding platform from its lender group. It has confirmed its main RCF (€175m) to May 2026 but with a reduced liquidity requirement (£15m vs £40m), no covenant tests until Sept 2024 and security over assets/investments. Invoice discounting lines of £83m have also been confirmed to Sept 2024. There is also an “upside sharing” arrangement triggered by an event (e.g., repayment of the facility in full or the sale of the business). Net debt was £164.4m for FY22. On our current cash projections, allowing for further working capital outflows, but reduced Capex, we expect the group to pass Sept 2024 covenant tests (3:1 net debt cover). Margins will rise so we anticipate much higher interest costs in FY23E, reducing again through FY24E as leverage improves. Looking to FY23E, the group is making progress in recovering inflation through pricing and reformulation, with more rapid recovery mechanisms now in place across its customer base, including Europe. There appears to be some steadying of raw material costs. Volumes have been robust, but more recently private label looks to be gaining some share among value conscious consumers. With further action to correct margins underway, we expect MCB to move back into modest profit in FY23E and we leave our EBITA forecast (£3m) unchanged. For FY24E, we hope to see a return to more typical profits and lift EBITA to £20m, from £10m. Given some degree of uncertainty, we opt to retain our Hold. TP remains 40p.
FY – in line and financing outlook secured The full-year results were in line with our expectations. Sales in the year were £678.3m, up 2.9% in cc, and adj EBIT losses of £24.5m were as expected. Importantly, the company has re-negotiated terms with its lenders, with the facilities re-confirmed to May 2026 and no covenant tests until September 2024. The company now has a strong platform from which it can deliver its Compass program. Trading has started well in the first few months of the year and the company should benefit from the increase in own label and discounter growth. We are maintaining our Hold recommendation and 30p target price. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
McBride has issued a pre-close statement as it exits its FY to June 2022. As it has been reporting through the year, trading has been heavily influenced by the exceptional level of input cost inflation and disruption to the supply chain. Through the period, it has been implementing price increases and as it exits the year, it reports that it has predominantly offset this cost inflation through these actions. It has not seen any major volume loss as a result of the pricing changes. However, given the time lag in securing the higher prices, the group reported a loss in 1H and we expect it to report a further, but smaller loss, in 2H. It confirms that adjusted operating profit is expected to be in line with current market consensus. We forecast an operating loss of £24m. As the group starts FY23, it is operating at around breakeven so we do expect a significant improvement yoy for FY23E v FY22E. We forecast modest EBITA of £3m and with further price and product engineering actions underway, we should see McBride start to return to more “normal” levels of profit in FY24, although we maintain more prudent forecasts for the time being. Closing debt levels also reflect this cost inflation. Net debt was £168m, up from £125m at the half year. This is largely due to negative working capital which reflects the higher prices of stocks but also a deterioration in creditor terms. As the group has moved into losses, it has needed to request covenant waivers. It recently announced that the June ‘22 covenant test would be waived until September. It is still complying with the terms of this waiver, which is to maintain £40m of liquidity as a minimum. At the year-end, it had £70m and the banks have been very supportive. In the interim, the group is exploring and assessing all avenues to maintain liquidity and create additional funding and hopes to update on this in September with its FY results (29th).
Trading update as expected McBride has confirmed that adjusted operating profit will be in line with expectations. Sales improved materially in 2H (+13.4% vs -6.6% in 1H) as the company pushed through price increases to recover input cost increases, and as the private label market stabilised. The increase in the cost of living should be helpful for sales going forward. Year-end net debt at £168m (vs £118m) was in line with our forecast. The increase was due to higher working capital due to inflation and funding losses. The group had £70m of liquidity at 30 June, which is £30m higher than the minimum liquidity requirement under the financing arrangements. The company restated that it ‘continues to explore and assess all avenues to maintain liquidity and create additional funding for the benefit of all stakeholders’. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
As McBride approaches its FY22 period end, it has announced a further bank covenant waiver. Its banking group had previously waived the December 2021 test, and also now waives the June 2022 test until September 2022. McBride has agreed to maintain the terms of this waiver, which includes maintaining at least £40m of liquidity. It currently stands at £75m. Net debt is expected to be higher vs our forecasts, largely due to the impact of inflation on working capital and a deterioration in creditor terms. We expect c£180m closing debt for FY22E, rising to £200m for FY23E (incl. IFRS 16). The group has also agreed not to pay dividends until it is dividend compliant. McBride also has its own capital allocation plan which indicates it will only declare a dividend if net debt is below 2x EBITDA. Reassuringly, it confirms trading is in line with expectations. It will provide more detail in a closing statement in July. However, at the half year, the group indicated it expected losses to reduce in 2H. The 1H EBITA loss was £14.8m and we are forecasting a FY22E EBITA loss of £24m. In February, it also remarked that, as its pricing actions were expected to reach maturity in Q4, it was anticipating the business to return close to breakeven at the EBITA level. If this is the case, we could expect the group to move back to modest levels of profit in FY23. We forecast EBITA of £3m (down from £6m). Returning to profit in FY23 will help improve EBITDA (FY23E £25m), but the debt levels mean it will not meet its banking covenants without further actions. Hence, it will continue to explore and assess all avenues to maintain liquidity and create additional funding, with a view to finding a solution by the time of its FY results (September). Setting a target price in the circumstances is difficult. We have assumed the balance sheet issues are resolved in settling our TP at 40p, but leave our recommendation at Hold until we know the outcome.
Banking support McBride has secured a covenant waiver from its banking group, which ensures that the company has space to address the balance sheet. Trading results are in line with expectations and the company is now operating at close to EBITDA breakeven. We make no change to this year’s numbers but take a more cautious view on the rate of recovery given the scale of input cost increases and pressure on consumer wallets. The level of debt is higher and the company is pursuing all options to address the balance sheet. We move our recommendation to Hold until we have greater visibility. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
McBride has reported half year results which show an EBITA loss of £14.8m. In December, it had guided to 1H22 losses in the range of £14-17m. This compares to EBITA of £19m in 1H21 which highlights the speed and scale of cost inflation hitting the group. Losses before tax were £16.9m, EPS was -8.1p and no dividend was declared. Revenues in the half were £323.4m, down 6.6% (on const. curr), but this compared to a period when some categories were still seeing some benefit from COVID. Versus the last pre-pandemic 1H, revenues are down only 3% and this is all laundry which has still not fully recovered. There was only modest price inflation in 1H revenue numbers, given the lag in recovery. McBride was successful in securing early price increases in 1H, but these were soon outpaced and further increases were sought. Most customers have been supportive, with these further increases taking effect in December and more fully in January. These should lead to improved 2H results, with the group expecting to return close to breakeven EBITA later in Q4. This should be followed by a move back into modest profits in FY23. Debt (incl. leases) at end-December rose to £125m, from £118m at y/end. The group secured an agreement with its bankers to waive the Dec 2021 covenant tests and the banks remain supportive given this is largely an EBITDA issue rather than a debt issue – at end-December it had £112m of liquidity. We revisit our forecasts to reflect the group’s outlook comments. We increase the EBITA loss to £24m for FY22E and assume EBITA profit of £6m for FY23E. This assumes that the current cost environment is unchanged. The group will continue to seek price increases which, if successful, could improve the outlook for FY23 and beyond. In light of our forecast changes, we trim the TP to 54p.
A very challenging environment The first half was extremely challenging with a combination of lower sales, rapidly rising input costs and supply chain disruption. Sales were lower due to comparison with the pandemic period and there was an improvement vs the 2H21 run-rate. The 1H adjusted loss was in line with guidance at £14.7m EBITA, however the continuing increase in costs and timing of the full maturity of price increases means we take a further £10m off our FY22 forecast. The company hopes to approach break-even at the EBITA level during 4Q as price increases are realised. Our expectations of a return to profit in FY23 are unchanged, based on an assumption of stable volumes and a full year benefit of price increases. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
Covenant waiver McBride has announced that the banking group has waived the December covenant test, and that it retains a high level of liquidity (c.£80m). McBride continues to make progress with passing on cost increases, but their timing means that we now assume EBITA breakeven in 2H, vs £5m profit previously, and a £17m loss in 1H. We are not changing our £10m EBITA forecast for FY23E. This has been a very difficult period for the company, with escalating cost increases now reaching £130m. Hopefully, we are nearing peak cost increase and the company is able to complete its pricing negotiations successfully. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
McBride has indicated a further deterioration in profitability in H1 22 given a further step up in some key commodities such as PET and citrates. As such its has indicated that H1 22 will now deliver an adj EBIT loss of £14m-£17m which is lower than the loss of £10m indicated in Sept. The explanati
No let up on cost surge Costs are continuing to surge and the company is having to put through substantial price increases. Short term, this is very painful and the company expects to lose c.£14m-£17m at the EBITA level in 1H. Assuming the price increases stick and volumes are maintained, the 2H performance should improve significantly. We are reducing our forecasts materially, but recognise that this is an industry-wide situation, which is likely to result in competitors becoming compromised. McBride has financing in place to ride out the storm. We have reduced our target price from 85p to 75p to reflect the exceptionally tough market conditions. We maintain our Add recommendation. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
McBride updates on its 1H22 trading performance. Since the October update, raw materials and packaging costs have continued to inflate, with availability issues also impacting on supply chain efficiency. Haulage and fuel costs have added to the margin pressures. The group has been active since the early summer in instigating price increases to recover this ongoing inflation, but its early recovery has now been outpaced necessitating further increases. Customers have been broadly supportive, but negotiations have yet to be fully concluded. Where agreed, the group expects to see some price benefits feeding through from early December, with a more full delivery from January. However, on those negotiations that are ongoing, we need to be mindful of possible volume implications. In October, the group indicated that it could see 1H EBITA losses of up to £10m, but it now changes this guidance to £14-17m losses. The range indicates the delay in some price changes being finalised. No full year guidance is issued given the uncertainty on the outcome of these negotiations and the future direction of costs is also unclear. Many materials are at multi-year highs but, at this stage, are showing no signs of reducing. Since Dec ’20 to March ‘22, the group estimates its inflation at £135m on a cost base of c£380m. Whilst the absolute outcome for FY22 is uncertain, directionally we reflect the reduced 1H guidance in our numbers. We reduce FY22E EBITA by £7m to a loss of £7m and FY23E by the same magnitude to EBITA (profit) of £10.4m. The group has controlled cash well with liquidity of c£80m at hand. It is in advanced discussions with its bankers re covenants and we expect support given the group’s past record of margin recovery across a raw material cycle.
McBride's AGM statement indicates that the cost environment has deteriorated further since the 9th September. Raw material and packaging costs have increased sharply ahead of prior expectations with distribution costs also rising ahead of expectations. Management comment that these costs "show no s
Cost increases continuing to surge The company was already facing c.£30m of annualised increases, but this has now more than doubled with further rises in input costs, energy price spikes and higher distribution costs. As a result, the company is needing to put through mid-high teens percentage price increases. Short term, this is very painful and the company expects to lose c.£10m at the EBITA level in 1H. Assuming the price increases stick, the 2H performance should improve materially. We are reducing our forecasts materially, but recognise that this is an industry-wide situation which is likely to result in competitors becoming compromised. McBride has financing in place to ride out the storm. We maintain our Add rating and reduce our TP from 89p to 85p. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
McBride has today updated the market on its Q1 trading. Having flagged a difficult start to FY22 initially in August, the climate has not got any easier. Sales trends have been largely predictable, but raw materials, packaging and freight costs have continued to move higher and the group’s estimate of the “in year” cost increases has now risen significantly. The group now sees an annualised impact of £65-70m for the period December 2020 through to January 2022, with energy also playing a part. The group had thought costs might level off around now, but this has not yet been evident. Hence, it has acted swiftly to instigate a second round of price increases with its customers across the UK and Europe. Given the steeper cost increases, the first half results will be more heavily impacted. The original view was that the group might break even at the EBITA level, but it is now likely to dip into losses and it guides to a loss of up to £10m. Where it settles depends on the extent of any further cost increases and the success/speed of securing price increases, but the group feels that £10m is a worst case. We should get greater clarity in the January 1H close update. These factors will also have a bearing on the FY too. Given the uncertainty on both sides (cost and pricing), the company does not guide on FY22. We have reduced our FY22E forecasts and now assume around breakeven EBITA (prev £12.6m) with EPS a small negative. Achieving this would infer a recovery of margins in the latter part of 2H, with a view to a solid profit recovery in FY23. However, to be prudent and given the same caveat over visibility, we also trim our FY23E numbers. We reduce EBITA by £10m to £17.4m. EPS is 5.3p. Net debt will be higher due to the lack of profit this year, although the group has not, at this point, requested a covenant waiver.
McBride's FY 2021 results were in line with expectations. The company's COMPASS programme is well underway, but progress has been held back by the challenging market conditions. These challenges have already been reflected in earnings revisions last month. Management is taking the long view in tryi
FY results and outlook as expected The company updated the market only two weeks ago, so there is little new to see in the results. Profits were £20m, very similar to our forecast. The start of the current year will be challenging given the exceptional increase in input costs, which means McBride will be broadly break-even at the EBITA level in 1H. We expect a stronger performance in 2H as price increases start to impact and with the benefits of Programme Compass. As ever, in difficult market conditions, opportunities arise and we expect the company to look to gain share from failing competitors and to look at in-fill acquisitions, which are likely to be at attractive prices. We maintain our Add rating and 89p TP. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
McBride has reported FY21 numbers in line with expectations, with PBT of £19.9m (INVe £19.8m), and EPS of 11.7p (benefiting from a deferred tax credit). This is an18% decline on FY20, with the shortfall all rising in 2H, and was due to the previously reported surge in raw material costs and additional logistics costs. Revenues were £682.3m which was 3.4% down on the prior year (-9.5% in 2H) due to weakness in the laundry category throughout the year and a return to more normal purchasing patterns of cleaning products in 2H. The net debt was £118.4m including IFRS16 (up from £101.5m) and included £6.8m on the share buyback scheme, although this is now ending, and more normal working capital. This net debt represented a banking covenant ratio of 1.5x. Debt is expected to increase in FY22 on the lower profits, but the group is expected to remain within its covenants. Given the magnitude of this cost inflation, the group has been seeking surcharges from customers and it is achieving some success. These price increases will start to contribute to restoring margins in the second half of this financial year, plus costs should start to retreat. The group has flagged that it does not expect to make a profit in 1H22, but hopes to have recovered to a more typical run rate for EBITA (mid £20m’s) as it exits this financial year. This should result in a strong bounce-back in profits in FY23 and this could be enhanced by the delivery of further savings from Compass actions. The next goal is to change future contract terms to include an adjustment factor linked to key commodities and also to increase hedging of materials – this should help flatten the impact of future raw material cycles. With management visibility over a bounce-back in profit in FY23, we base our TP on our estimates for that year. It increases to 98p. Buy retained.
Meeting Notes - Aug 20 2021
MCB HTWS OSB
A potential best-in-class decision support diagnostic in lung cancer. LungLB identifies genetic aberrations indicative of lung cancer in cells from a peripheral blood draw, supported by imaging AI. A 149-patient, prospective Pilot Study (on samples from MD Anderson Cancer Center and Mount Sinai) demonstrated sensitivity of 76%, specificity of 71% and a positive predictive value of 89%, a balanced performance appropriate for the intended setting. Validation Study preparations underway. A 425-patient, prospective Validation Study (start Q3 2021e) will be performed to support commercial launch (initially as a Laboratory Developed Test), FDA clearance (2023e), and US payer discussions. Subject to positive data, we anticipate a high level of interest from payers and practitioners as LungLB is differentiated from existing approaches in terms of cost and utility, especially in early-stage disease. We estimate peak US sales potential of 160,000 tests pa. We assume initial launch as decision support for improved management of indeterminate lung nodules, around 1.6m of which are detected in the US annually, with future potential in post-surgical monitoring. We assume reimbursement at $950/test and expanding Medicare and private payer coverage post launch. Potential Breakthrough Device designation (2022e) would support an accelerated regulatory path and nationwide Medicare coverage. Attractive valuation. Our 261p target price is based on a 12-year risk-adjusted NPV, using a 7% discount rate and a progressive probability adjustment related to expected regulatory and commercial progress. Buy.
McBride plc LungLife AI, Inc.
As previously indicated the raw material cost environment remains challenging, especially in its liquids business. In addition, the company is also experiencing distribution challenges, particularly in the UK and Germany. Efforts to recover these cost increases are ongoing but the effective start d
Tough environment McBride continues to face exceptional input cost increases. Price increases have now largely been secured, but these will take effect later than originally envisaged. In addition, the company has experienced distribution challenges, which have impacted transport availability and cost. The company expects to be broadly break-even at the EBITA level in 1H and for FY profits to be 55-65% lower than consensus of £19.7m (PHe £16m). We are reducing 2022E PBT to £8m, but retaining our 2023E of £23.6m as price increases have largely been secured and distribution challenges should normalise. Although disappointing, this is not a big surprise given the extent of the input cost inflation and general supply chain issues. It does not alter the benefits to come from Programme Compass and will reinforce efforts to improve cost management. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
McBride has issued an update flagging continued challenges for trading at the start of its new financial year. It had already highlighted the raw material cost inflation (plus some availability issues), but this has been exacerbated by logistics issues given the well-publicised shortage of HGV drivers. This is affecting outbound deliveries in the UK and Germany. The raw material environment is as expected and the group has been holding discussions with customers around variable surcharges related to certain key input commodities. These discussions have been largely successful, but the date at which the price increases become effective is later than it had anticipated as competitors were slow to follow suit on price. Hence, for the current (FY22) year, MCB is now expecting to only breakeven in 1H at the EBITA level. 2H21 is only likely to show a small profit on consensus numbers so it’s a slight deterioration on that. However, as the price increases start to take effect, it sees profits recovering to exit FY22 at the average run rate it has seen for the past few years (EBITA mid £20ms). Therefore, it guides that profits for the current FY22 period will be c55-65% below consensus for FY21 (which is £19.7m). This suggests FY22 PBT of c£8m and EBITA of c£12.5m. Net debt will also rise in FY22 to be 5-10% above the FY21 level; we forecast £120m for FY21E. The group expects to remain within covenants. We downgrade FY22E PBT to the level above. This is a sharp drop, but the group expects to see it rebound quickly as it enters FY23. We should then see it rebuild as the Compass actions take effect. We cut our TP by the same proportion as the FY23 downgrade (20%) to 80p.
Full-year update as expected Profits for the year and net debt are expected to be in line with consensus, which reflects a tougher volume environment and cost inflation in 2H. These conditions are continuing and the company is discussing margin recovery actions with customers. The shares are currently trading at close to our target price of 89p, which we do not expect to change until the pricing environment becomes clearer. We maintain our Add rating. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
McBride has issued an update for its recently closed FY21. It indicates it is in line with market expectations for operating profit and PBT, so we make no changes to forecasts in this note. It expects to deliver (const. currency) revenue c4% lower vs FY20. This is less than we were forecasting and reflects softening demand in Q421 (lapping a strong COVID-boosted Q420) plus some destocking (consumer and retailer). The weakest category has been Powders (-16%). The group updated the market in May on the cost situation, reporting sharp inflation in its raw materials (with some categories up by 30%). This remains the case although it has not accelerated further. This has had an immediate impact on 2H margins, but the group is now in the process of implementing pricing surcharges. These discussions are not yet finalised, but we should have better visibility on the outlook for costs/margins FY22 in September (FY results on 7th). Competing businesses are also struggling, with two believed to be commencing insolvency proceedings. Although the immediate focus is pricing, the plans highlighted in Compass remain valid. In the medium term, the group is accelerating plans, including to introduce some indexation of key materials into its contracts to help maintain margins when future spikes occur. It will look to introduce these new contracts as they renew with customers over the coming 12-18mths. Y/end net debt increased by c£20m to c£119m, but this was expected and reflects the reversal of the working cap benefit from last year plus c£7m of equity buy-back. As statutory y/end net debt/EBITDA sits above 2x (at 2.6x) McBride does not expect to declare a final dividend. Banking covenants are comfortably within limits at 1.4x.
The sharp rise in input costs means that McBride's adj EBITA is now expected to be c.15% lower than last year resulting in c.28% downgrade to adj EPS. The new Compass strategy remains in place but given the susceptibility to raw material inflation we struggle to see the investment case. Maintain Ho
Sharp increase in input costs The company has warned that input costs have continued to rise sharply and that sales have been below expectations. As a result, EBIT for the current year is likely to be c.15% below the £28m reported for last year. Albeit disappointing, this is not a big surprise given the extent of the input cost inflation and as it will take a few months to pass on. It does not alter the benefits to come from Programme Compass and will reinforce efforts to improve cost management. We are not changing our 89p target price as that already incorporated the risk of higher input costs. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 3-page note
McBride has delivered a good performance over H121, with higher revenues and improved gross margins. Input costs have started to increase, but the board’s expectations for the full year are unchanged. The company gave an update on its new strategy, Programme Compass, and as previously announced, the business has been reorganised into product divisions to sharpen focus, improve execution and increase speed to market. McBride has been through several strategy resets over the years and time will tell if this successfully addresses the company’s long-term challenges. The CEO has thorough knowledge of the business and there are not expected to be substantial exceptional or capital costs associated with the programme.
McBride delivered a comprehensive update on its Compass Programme yesterday afternoon. The de-centralised strategy, focussing on five new divisions, intends to increase the accountability and agility of the organisation. In turn, this should result in achieving the ambitious five-year financial tar
Below, we set out what we see as the key takeaways from yesterday’s CMD discussing the group’s Compass strategy. Focus Change in group structure; management believe this was one of the key issues in past poor delivery/failure to execute. The new category focus gives full P&L ownership and accommodates the different roles each division will play. Two divisions will lead on growth though new products (Unit Dosing and Aerosol), two will be more cost reduction-led (Liquid and Powder) and AsiaPac is a hybrid of the two. It should allow the group to rekindle specialisms and improve agility/speed to market. All divisions are projected to assist in reaching the €1bn target for revenue. Costs Critical early role – The team are aiming for £20m of annualised cost cuts by end FY23, from simplification of the portfolio as well as eradicating unjustified costs – allowing the existing scale benefits of the business to flow to profit. Some savings will be reinvested in reducing price to improve competitiveness and drive future revenue. Further cost savings will be sought in years 3-5. On raw materials, MCB will look for opportunities to manage the cycle better, but flagged that it cannot eradicate it completely. Across the cycle, the evidence is that they do recover costs, and with this plan they expect to deliver higher average margins across the cycle. The target is 6-8% EBITA margins by year 5 vs the 10 year average of 4%. Financials A two-stage plan – in the first 2 years, the focus is cutting costs, improving the NPD pipeline, and increasing marketing; Over the next 3 year, the team will target volume-led growth, share gains, and possible co-management deals. They expect some profit progress in first two years (+25-30%), but this should accelerate in years 3-5 (40-50%). On the cash front, this is not a capital intensive programme, either in terms of capex or exceptionals – all the heavy lifting has been done on the factory footprint and the assets are well invested. Any capex will need to be justified by growth or product capability. Acquisitions could play a part in time (especially in AsiaPac), to deliver new product offerings or to consolidate. A new divided policy has been introduced – the group is moving to an annual payment only, and only once net debt/EBITDA is <2x.
On the right course MCB is holding a CMD today, which will provide details on Programme Compass. The headlines are a target of €1bn of sales (ie >20% increase) and 2-4% margin improvement (vs 4.0%). This would deliver materially higher profits (c.2x), cash flow and ROCE. MCB also laid out its capital allocation policy, which prudently retains more cash in the business. On the trading front, MCB had a strong 1H but demand is volatile and material costs are higher. We trim 2021E EBIT by 3%, but leave 2022E unchanged (where we are bottom end of consensus). We increase our TP to 89p to reflect the stronger medium-term outlook. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com 2-page note
Upgrading on stronger sales The company announced that sales have been ahead of expectations, with H1 expected to be +2%. It expects profits in H1 to be materially ahead of last year, helped by lower input costs and factory efficiencies. The company projects full-year profits to be at least 10% higher than consensus of £25.2m. We increase our PBT forecast from £26m to £28m (EPS from 10.2p to 11p). We raise our target price from 70p to 75p and upgrade from Hold to Add. The shares are trading on a PE of 6x to June 2021E and EV/EBITDA of 5.0x. Charles.Hall@peelhunt.com, Andrew.Ford@peelhunt.com
McBride has issued a trading update indicating that it expects to see a stronger 1H than envisaged. At its AGM, it indicated that it had seen broadly flat revenues after the first 4 months. The comparatives from last year for November and December were weak, but trading this year is “favourably ahead” and the group now anticipates that it will show c2% growth in 1H21. This would translate to c.10%+ growth from these final two months. The pattern of trading remains the same by category - strong growth in surface cleaners, anti bac/bleach and dishwash, but ongoing weakness for laundry. We had already expected a weighting of profit growth towards 1H, but the group confirms today that 1H profits will now be materially ahead. Factories have continued to perform well, despite COVID, so operating costs have been lower than expected. Additionally, we have seen some benefit to margins from lower input/packaging costs, although these are now starting to edge up. We expect 1H21E EBIT of c£17.5-18m for 1H vs last year’s £11.6m (but 2H20 of £16.7m). Interims are scheduled for February 23rd, along with a full presentation on Project Compass. The group continues to be cautious around 2H - we have Brexit to contend with as well as ongoing COVID restrictions. The last 4 months of FY20 will provide some tough comparatives and also raw material costs could be higher. However, even assuming a reduced 2H21E, this would still suggest a higher FY outcome and hence the group now guides to a 10% beat to consensus (currently £25.2m PBT). We upgrade our FY21E PBT forecast today in line with this guidance, to £27.7m from £25.3m. EPS is 10.8p (from 9.8p). We lift our FY22E forecasts too, but by a smaller margin (7%) with new EPS now 11.3p versus 10.6p.
McBride has delivered a mixed FY20 performance, with a weaker H1 and a bounce back in H2 as a result of increased demand due to COVID-19. A strategy review has been undertaken, and the company will be reorganised into separately managed product divisions. Time will tell if this will successfully address McBride’s long-term challenges, but the new CEO has a thorough knowledge of the business, and we await further details, which are due to be announced in February.
McBride has reported FY20 PBT of £24.2m and EPS of 9.5p. EBIT was only modestly down on FY19 at £28.3m (£1.3m ahead of our upgraded forecasts from July). A final dividend of 1.1p was declared after the cancellation of the interim, but future dividend policy will be clarified in February 2021. Net debt at the y/end was c£28m lower at £92.8m (IFRS 16 £101.5m). This is 1.4x EBITDA (on the bank covenant basis). This was a better 2H result after a challenging 1H. The group had some late revenue assistance in the year from increased (Covid-related) demand for certain cleaning/dishwash products (partly offset by lower laundry sales) and also aerosol antiseptic hand gel. From a profit perspective, the benefit was mitigated by higher costs in meeting this increased demand and keeping staff safe/factories operational. The group has shared the outlines of its new strategy “Programme Compass” which aims to drive revenues to €1bn in 5 years. A new divisional approach will give P&L ownership to 3 new divisional MDs (for Liquids, Unit Dosing & Powders) allowing them to identify and target opportunities and deliver profitable growth. Each division will likely have a different strategy reflecting the different growth profiles. Asia/Aerosols are already standalone and will continue to be managed independently (but report to the Powders MD). Trading in the early part of FY21 has seen the Covid-19 revenue boost start to moderate, so the group is flagging only modest revenue growth for the year. With efficiency improvements (Barrow closure/overhaul of logistics) profits are also expected to be modestly ahead of last year. As the group exceeded our FY21E forecast in FY20, we upgrade PBT by £2m to £25.3m, with EPS of 9.8p and expect more progress beyond as the strategy starts to deliver.
McBride has issued its pre-close statement for FY20. Through Q420, the group reported stronger revenue run-rates. This started with a surge in March and, whilst it moderated in April to June, it has remained above the comparable Q4 last year. The strongest categories are surface cleaners and dishwasher products. It reports that Household revenues were up by 1.3% in 2H20 (vs 1H20) and that it now expects to deliver results ahead of consensus (adj. PBT £21.6m, incl. pension interest). Net debt also shows a healthy reduction to c£93m (1.5x EBITDA), although there is some timing benefit in working capital. Like other FMCG manufacturers, McBride has had to combat staff shortages and material availability issues, but it has largely been able to meet this increased demand through production, with some flex around stock. The collapse in oil prices in Q4 was helpful for raw material pricing, although the group has incurred some additional (Covid-related) manufacturing costs. The results are also expected to benefit from a windfall performance in the group’s aerosol business, which launched an aerosol delivered hand sanitiser in Q4. It is not clear how long this aerosol benefit or the general boost in sales of cleaning products will continue, but it reports that in Europe, where markets are reopening, demand is returning to more normal levels. On this statement, we lift FY20E PBT to £23.5m and EPS to 9.1p (from £22m and 8.5p). Our forecasts exclude pension interest of £700k. We lift FY21E PBT by £1m given the upgrade for FY20E, but are mindful that the Covid benefit will likely diminish as the year progresses. However, we will want to review the numbers post the strategy update in September. Management changes have previously been announced with Chris Smith stepping up to the CEO role. Clive Jennings (ex Rank plc) has been appointed interim CFO.
Change of CEO McBride has announced the appointment of Chris Smith as CEO (previously CFO). Ludwig de Mot is to leave the business with immediate effect. Strong credentials Chris has shown strong international leadership skills in several multi-site, multi-country organisations, most latterly at McBride, joining the group in 2015. The board believes Chris has the determination and enthusiasm to implement the next stage of the strategy. A search will commence for a new CFO forthwith, but the group intends to appoint an external candidate as interim CFO in the short term. Trading in line There has been no material change to trading since the 19 May announcement, which highlighted increased demand in its household business.
In March, McBride reported that, as a result of Covid-19, it had seen higher demand in its household business in many markets and categories (surface cleaning and dishwashing mainly). At that early stage, it was hard to disaggregate stockpiling from any likely ongoing increase in consumer usage. However, the group today reports that although down from its peak, demand has in fact remained above previous (pre-Covid) run rates. Additionally, the issues around staff shortages in factories and the logistic chain have started to ease, which has enabled the group to not only mostly meet these higher orders but also start to replenish inventory levels. Raw material costs have been reducing in Q4, but this has been partly offset by the higher operating costs required to facilitate increased volumes, rebuild inventory levels and put in place additional safety measures for staff. As a result, the group flags that it expects Household to finish above previous expectations and also the aerosols operation has seen a strong close to the year following the launch of an aerosol-delivered hand sanitiser. It now expects to exceed market expectations (PBT £18.6m incl. pension finance) by 15%. Hence, we increase our FY20E PBT forecast (which excludes pension finance of £0.7m) from £19.5m (7.6p) to £22m (EPS 8.5p). This extra profit, plus stock reduction will also help year-end net debt balances by c£10m. It is difficult to forecast how long this increased demand will continue but, at this stage in the pandemic, we would expect to see some benefit at least in Q1 21. We increase our FY21E PBT from £21m (8.2p) to £23m (8.9p), but the group’s pre-close in July may shed more light on the outlook for the new financial year. It’s possible however that there could be some longer-term benefit as new habitual cleaning behaviour is established.
Increased short-term demand McBride has released a COVID-19 update which reports that, since March, the group has seen an increase in orders across most regions for a range of cleaning products including bleach, anti-bacterial/disinfecting sprays and certain dish and laundry products. In some categories, the increase in demand is as much as 50% but it is not clear to what extent this is due to increased usage (undoubtedly there will be some of this with people at home more and hygiene high on the agenda), but also perhaps some short-term stockpiling. Production inefficiencies Whilst the increase in short-term demand is clearly helpful, the group is encountering some production issues. All of its sites are open and operational, but labour attendance and some raw material supplies have been variable, as have logistics (inbound and outbound). Despite these issues, the group is largely meeting this excess demand, at present, but through stock depletion and production priority. With this fast changing situation, predicting the result for this year is becoming increasingly difficult, although we would not read this as a flag to a significant shortfall. Revenues are favourable and the group is hopeful of seeing improving raw material benefits in Q4. However, production inefficiencies are hard to predict and it is possible production restrictions will increase if more countries impose lockdowns. The group is actively looking at a number of options to counter this, including recruitment and customer prioritisation. Dividend cancelled At the half year (Dec’19), the group reported that net debt/EBITDA was 2.1x (lower than the headline numbers suggest) and comfortably within the group’s 3x covenant, so we see no obvious threat here without a sizeable profit shortfall. However, the group is mindful of preserving its cash resources and has prudently opted to cancel the interim dividend (of 0.8p) which saves c.£1.5m. The group has committed headroom of £60m in its RCF. It will continue to update the market on trading as appropriate, but we make no changes to forecasts at the present time.
McBride’s H1 results revealed a mixed picture by geography. Household revenues were down 1.4% at constant currency and group revenues were down 4.4%. Adjusted operating profit was down c 30%, and there was a marked slowdown in the business during November and December. However, January saw an improvement. FY guidance has been maintained, implying a better H2 helped by easier comps and a relatively benign raw material outlook, although we note that distribution costs were higher during H1, and management highlights that markets remain challenging. The new CEO, Ludwig de Mot, has initiated a comprehensive review of the business, on which he expects to report at the FY results in September. Following a series of disappointments, the valuation fairly reflects the balance of risk and opportunity.
1H results from McBride were in line with our expectations. Adjusted PBT (excl pension finance) was reported at £10.1m versus our forecast of £10.0m. This was a 33% decline on the comparable period. EPS in the half was 3.9p and the interim dividend was reduced to 0.8p (1.5p). We trim FY dividend assumptions. The group had already reported that group revenues would be down 1.4% in 1H after a weak Q2, particularly in the UK (which was -8% lower in 1H20). Revenues were lower in France and North, but this was in line with previous trends and not a deterioration. The other regions of the group (South, East and Asian) reported solid progress. Costs in 1H were in line with expectations. Raw material/packaging costs have been largely stable (naturals are up/testliner down), but logistics costs continue to rise. The group is nearing completion of its study to identify logistics savings. These plans will not be implemented until the new CEO’s review of the strategy completes. The group will report on its findings in September. Net debt at the half year was £113.5m, excluding IFRS 16 (£121.7m incl IFRS 16). Leases and amounts drawn under discounted invoices are excluded from the bank test, leaving the group comfortably within covenant limits (2.2x vs limit of 3.0x). The group reiterated previous FY20 guidance (revenues down 2% which with operational gearing implies a profit fall of just over 20%). We make no changes to our FY20E forecasts, but take a more prudent view of revenue in FY21E which reduces our PBT by £1.5m to £21m, with EPS of 8.2p (8.7p prev). Our TP is also unchanged and our recommendation remains at Hold as we await further clarity around the strategy and cost improvements.
McBride has issued its 1H update, indicating Q2 sales have been weaker than expected - overall for Household in 1H20, the group reports a 1.4% decline on a constant currency basis. In particular, the UK (1H -8%) and Germany have weakened in the past two months. Regionally, the group continues to perform well in Asia, the South and East. France and the North remain challenging markets (as in 2H19). MCB had previously guided to a small decline in FY20 PBT vs FY19, but PBT is now expected to be c15% below current expectations (previous consensus PBT was £22.1m incl. pension interest). We trim FY20E PBT to £19.5m (which excludes pension interest of £0.7m), EPS 7.6p (prev £23.5m, 9.1p). We forecast a decline in 1H20E PBT to c.£10m (1H19 £15.1m). The raw material situation in 1H has been largely benign although distribution costs continue to rise. Management are implementing cost initiatives, with distribution/logistics back on the agenda. The group hopes to see cost benefits start to materialise as the year progresses, and into FY21. We assume profits rise next year albeit these forecasts are also reduced (see table 1 overleaf). At the half year, net debt is reported at £113.5m, a little below the FY19 level, thanks to an inflow from working capital and some FX benefit. For the full year, we predict a net debt/EBITDA ratio of 2.1x (on the banks’ measure). We revisit our TP using FMCG peer multiples and our new EPS forecasts. It moves to 70p. We leave our recommendation as Hold as we assume the shares will adjust quickly today on this news. Ludwig de Mot joined as CEO on 1 November and has initiated a review of the strategy, expecting to report on this in Q4 of the financial year.
Q1 update – full-year guidance unchanged. Through the course of FY19, trading became more challenging for McBride, with weaker volumes in certain markets (UK & France) plus the anticipated loss of some volume resulting from the implementation of necessary price increases. With this more challenging backdrop in mind, and these revenue factors annualising through FY20, the company reiterates July 2019 guidance that it expects to deliver flat household revenues and a small decline in PBT this year vs FY19 (with a slight weighting for earnings towards 2H). In Q1, the group delivered 1.8% revenue growth in Household (const. currency), led by Asia, Spain, Italy and Germany. Aerosol sales declined 1.4%, as expected, following the UK exit last year. The group has recently announced the appointment of a new CEO, Ludwig de Mot, joining the board on 1st November. He has broad experience of manufacturing and selling across many different geographies. As a result, Chris Smith will return to the post of CFO and David Rattigan (acting CFO) is leaving to become CFO at Nichols plc. Jeff Nodland (previously a MCB NED) replaces Chairman John Coleman, who did not seek re-election at the AGM. As the new CEO settles in, the group will reprioritise projects around the footprint review which were postponed last year when it added significant new volume. Logistics costs and raw materials appear to be stable at present, albeit at a high level.
Despite the challenges encountered during FY18, McBride delivered underlying revenue growth of 3.7% excluding aerosols. Raw material and labour cost increases hampered profit and margin progression, but the inflationary trends have started to stabilise, so there should be less pressure during FY20. The ‘Prepare’ phase of the strategy has been reinvigorated, such that management’s expectation for FY20 remains of flat revenues and earnings slightly below FY19.
McBride reported FY19 numbers in line with our expectations – we were forecasting PBT of £26m and it delivered £25.2m (ex-pension finance). EPS was 10.1p (FY18: 13.3p) and the full-year dividend was 3.3p (reduced from 4.3p). PBT was a 26% decline on the previous year as the group encountered slowing markets in 2H. Continuing FY19 revenues were ahead by 2.7% (LFL), but 2H19 showed a decline as the climate deteriorated. The North (Europe) and France were the most challenging markets – sales weakness reflected the wider market backdrop, although there were also some business losses later in the period following the group’s pricing actions. These actions helped to partially mitigate cost inflation (labour, materials, distribution). Progress was made in tackling underperforming sectors. Net debt closed the year at £120.9m, with debt cover at 2.6x EBITDA, but only 2.1x for bank debt vs the covenant of 3.1x. The small increase reflects lower profitability plus some working capital movements (payment timing and higher stocks). We expect to see some reduction in net debt in FY20E. The search for a new CEO is progressing; an interim COO has been appointed, with Chris Smith (CFO) acting as interim CEO. The board’s FY20 guidance, issued in July, was for group results to be slightly below FY19 and this remains unchanged. It will reprioritise projects postponed around footprint review to help mitigate any costs, but raw materials do appear to be stable, albeit at a high point in the longer-term cycle.
McBride issues a full-year pre-close for FY19. It states that trading has been marginally weaker in Q4 than expected. It expects operating profit and PBT to be broadly in line with current market expectations. To reflect this commentary, we reduce our EBITA forecast by £1m to £29.5m and PBT to £26m, EPS 10.1p. The weakness has been largely sales led. Although the group expects to show underlying progress in FY19 revenues of 2.7%, 2H19 revenues were 1.7% lower than 1H, indicating a slowdown. This is partly due to difficult markets (e.g. France), but there have also been some contract losses following the group’s pricing actions last year. As a result, the group starts the new financial year with lower sales activity than previously expected. It expects FY20 Household revenues to be flat yoy, but reported sales will be lower, reflecting the impact of the closure of the UK aerosol business. The closure of the UK site was completed in 2H19, but the group still needs to work on stranded central costs. The lower sales expectation will impact on profit forecasts for FY20. The group states that it expects earnings to be slightly below those of FY19. We trim FY20E EBITA from £34.5m to £27m, a 22% reduction. EPS is forecast at 9.2p (prev 12.2p). Following the announcement that Rik de Vos will be leaving, the search has started for a new CEO. In the interim, Chris Smith (CFO) will take on the role of interim CEO and David Rattigan will assume the Director of Finance role.
Further increases in distribution costs due to a tight European logistics supply market and lowered benefit expectations from easing raw material costs in 2H’19E led to McBride cutting its FY’19E guidance yesterday to a 10-15% yoy PBT decline (consensus expected +13%). The sales growth remains strong at +6% LfL in 1H'19, with McBride achieving some success in passing through price increases in markets like UK and Germany.
McBride reported 6.0% organic revenue growth in 1H’19 (+5.5% in 1Q’19), in line with our expectations. The growth was driven by the annualisation of last year’s contract wins in the UK and Germany and recovery of a lost contract in Germany which had impacted 1H’18. Raw materials, packaging and logistics costs in 1H’19 were higher than budgeted at the start of FY’19, particularly in 2Q’19. However, the easing of raw materials prices in recent weeks, after nearly two years of increases, has allowed the company maintained to maintain full year earnings expectations (consensus adj. net income of £27.1m vs. Liberum at £26.0m in FY19E). Earnings delivery is likely to be 2H’19 weighted, as we had expected. With the benefits of PCA aerosols plant closure, Danlind synergies and distribution efficiency projects likely to start accruing in 2H’19, the company remains well positioned to improve earnings in 2H’19 and beyond. At the current valuation of 8.5x 12m forward PE, the risk reward balance is in favour of the shares and we retain our BUY rating with a 170p target price.
McBride reported 5.5% organic revenue growth in 1Q’19, in line with expectations as the company benefited from the annualisation of last year’s contract wins in the UK and Germany and recovery of a lost contract in Germany which had impacted 1Q’18. Including the acquisition of Danlind, sales were up 15.4% in constant Fx in 1Q’19. Raw material, packaging costs and logistics costs were slightly higher than anticipated in 1Q’19, especially in northern Europe. While management maintained full year earnings to be in line with expectations (consensus adj. net income of £27.1m vs. Liberum at £26.0m in FY19E), it remains subject to how raw material and packaging cost move through the rest of the year. We believe European retail customers remain tough negotiators and price increases needed to mitigate the impact on 2019 profits will remain a challenge and could come at the cost of volumes. However, at the current valuation of 9.3x 12m forward PE, the risk reward balance is in favour of the shares and we retain our BUY rating with a 170p target price.
The finalisation of PCA Europe restructuring/disposal plan leaves McBride with a focused, profitable and specialised Household business (>90% of FY19E sales) where the company enjoys long-term competitive advantages in terms of scale, R&D expertise, and financial stability and strength vs. private label competitors. However, retail customers remain tough negotiators and have further increased their clout via strategic M&A and sourcing partnerships. Business wins from last year and Danlind acquisition will contribute to profits in 2019, but savings from efficiency projects, Danlind synergies and savings from the transformation of PCA Europe Aerosols will be 2H’19/1H’20 weighted. With input and distribution costs on the rise, price increases will be needed to mitigate the impact on 2019 profits, which remains a challenge and could come at the cost of volumes. However, we think at the current valuation of 9.0x 12m forward PE, the risk reward balance is in favour of the shares and we retain our BUY rating with a 170p target price.
Weak underlying demand, higher raw material labour and transportation costs, and temporary inefficiencies to serve the new business wins in Germany have combined to McBride posting an adjusted PBT of £31.7m in FY’18, down 8.4% vs. last year and in-line with market expectation. With the transformation of the loss-making PCA Europe business finalized (and to be completed by end of FY’19), McBride is now a more focused, specialized and profitable business (adjusted op. margin of 5.5% for continuing operations vs. 4.8% for total operations). However, issues remain near term as higher input costs, higher distribution costs, and inefficiencies in the ramp-up of new business wins are likely to persist, while passing through price increases remains as challenging as ever. Savings from efficiency projects, Danlind acquisition synergies and further savings from the transformation of PCA Europe are likely to be 2H’19 weighted. Focus in FY’19 remains on the profitable delivery of anticipated volume growth while mitigating the cost pressures.
McBride offers significant self-help opportunities and increasing exposure to higher growth customers like hard-discounters and segments like autodishwashing. A challenging trading environment and pressures from raw material, labour and warehousing/distribution costs weigh on near term results. We were over-optimistic on results in the face of a number of shortterm headwinds, and now cut our estimates by 4% for FY18E and 11% for FY19E to reflect a more conservative stance. However, we retain our BUY rating on the stock with a lowered 170p TP. While the shares are unlikely to see a major move in the near term, we think at 8.9x forward PE, this is well reflected in the price and shares continue to offer strong value once nearterm headwinds dissipate.
McBride has super-charged its growth profile, having won new business as competitors struggle. The long-term benefits from its repair phase are being delivered, with robust underlying margins. As end-markets continue to be tough and increasing raw material inflation puts pressure on its competitors, further business wins are likely. At 11x FY18E EPS, McBride appears undervalued given the strong growth (Household) and substantial margin opportunity, especially when PCA is restructured.
McBride reported a -210bps decline in adjusted operating margin in 1H’18 to 4.3%, driven by higher raw material, labour and transportation costs, and weak PCA sales. Sales declined -4.7% on a LfL basis in 1H’18. 1H’18 adjusted diluted EPS declined -30% yoy to 5.2p, but the company declared a 7% higher interim dividend of 1.5p reflecting confidence in the outlook for the business. The restructuring of the PCA business has progressed with the sale of the Skincare business (£15m sales) completed and target to return the business to break-even by end of FY’19. Guidance for FY’18 is reiterated, with Household expected to deliver mid-to-high single digit LfL growth in 2H (and further contract wins “anticipated”) and FY’18 adjusted PBT and adjusted EPS to be broadly in line with FY’17.
Nobody likes profit downgrades, but if one was inevitable we would prefer it to read like the one McBride put out yesterday. McBride reported major new contract wins in Germany and the UK (sales of £50-55m), achieving the majority of its 4 years’ growth target within 6 months. We see the new business wins as a manifestation of the operational improvements made over the last few years and a reflection of the scale advantage that it has. However, the additional resources required to deliver the higher volumes have pushed back the previously planned efficiency initiatives. In addition, unforeseen cost pressures have combined to a 20% cut to our FY’18 adjusted PAT. There is no change to the 7.5% op. profit margin target, but we push it out by two years to FY’22. The scale of the contract wins and McBride’s ability to navigate exogenous shocks could see other competitors fall by the wayside and when the planned efficiency projects are restarted, they could have a greater positive impact. We see yesterday’s share price fall as an exciting entry opportunity.
McBride has completed its Repair phase of the turnaround programme and has commenced the Prepare phase. The business is performing in line with what management had set out at the start of the programme, and overall progress demonstrates that McBride is indeed now more focused on the bottom line, as key financial ratios are improving. The acquisition of Danlind for £39m, announced earlier this week, demonstrates that execution of the Prepare phase is already well underway.
In July MCB is moving from the “Prepare” to the “Grow” phase of a far-reaching transformation plan launched in Autumn 2015: “Repair, Prepare, Grow”. As such, we see a route to further significant EBITA margin expansion in the nearto mid-term, (from 4.2% in FY15, to 5.3% in FY16, and c7% in FY19), driven by further SKU simplification, optimisation of the manufacturing footprint, and further operational efficiencies. We also see meaningful and higher quality revenue growth on a 5 to 10 year view, by expanding its contract manufacturing activities and possible M&A in alignment with organic efforts. Recent H1FY17 results demonstrated steady progress towards medium-term aims of EBITA margin of 7.5% and ROCE of 25-30%, highlighting also that the Aerosols operations (c. £60m of sales) may be sold (we would not be surprised if the entire low margin PCA (Personal Care & Aerosols) business is divested in time).
McBride is halfway through its restructuring plan, having completed the Repair phase, and is now implementing the Prepare part. This should set McBride up for more sustainable and profitable growth. What sets this programme apart from previous attempts is management’s absolute focus on tight cost control and business simplification. This should avoid increased overheads and complexity creeping back into the system as the business starts to grow again.
Today’s H1FY17 trading update shows that MCB is confident it is on track to meet its expectations for FY17 adjusted EBITA, a c.16% y/y improvement. H1 financial performance has been ‘encouraging’, continuing the trend seen at Q1FY17 and throughout FY16. This is translating into good cashflow generation with net debt reduction trending promisingly ahead of our y/e forecasts. We are increasingly confident therefore that, despite a still turbulent European retailing backdrop, MCB continues to take control of its own destiny as it finds more effective, efficient and collaborative ways to work with the traditional grocery retailers, and growing with the thriving channels. In our conversations with management, there is a particularly measured confidence around cost control (i.e. re-engineering products, waste and overheads, mainly central but also factory) which adds assurance to our forecasts. In short, we share management’s overall confidence on the continued successful execution of MCB’s transformation strategy to focus on higher quality revenues, margins, manufacturing/operational excellence and leveraging its scale as the principal means to drive a fundamentally different competitive position and a sustainable step-change in MCB’s financial performance. H1 FY17 results are due to be announced on February 22nd. We increase our TP to 220p (from 210p) to reflect the underlying positive momentum and maintain our BUY.
MCB is now moving into the “Prepare” phase of a far-reaching transformation plan launched in Autumn 2015, “Repair, Prepare, Grow,” and, as such, we see a route to further significant EBITA margin expansion (from 4.2% in FY15, to 5.3% in FY16, and c.7% in FY19, driven by further SKU simplification, optimising the manufacturing footprint, and further operational efficiencies) in the near- to mid-term, and meaningful and higher quality revenue growth (by expanding its contract manufacturing activities and possible M&A in alignment with organic efforts ) on a 5 year to 10 year view.
“Encouraging” AGM/Q1 (July-Sept 2016) FY17 trading update should reassure further as it builds on the strong momentum of the recent FY16 results. Management’s self-help initiatives appear increasingly sure-footed. Reflecting the balance of this encouraging Q1 outcome and the highly uncertain backdrop (e.g. raw material prices/input cost inflation, currency movements, and other macro pressures), we think it prudent to keep our FY17 forecasts unchanged for now, not least as there are another 3 financial quarters to navigate. That said, so far so good. We therefore retain our BUY.
Today's FY16 (y/e June) results delivered adj. EBITA of £36.2m, in line with our upgraded expectations post the mild positive profit surprise accompanying July 11th's FY16 pre-close. These results impress as they demonstrate strong financial progress on multiple levels delivered in just 12 months, the period allocated to the now completed "Repair" phase (excl. the PCA division requiring further focus) of MCB’s 3-5 year strategic transformation plan. The plan now moves confidently into the second phase, “Prepare”, characterised by MCB investing in and leveraging its more simplified platform of manufacturing, warehousing and distribution assets to drive a fundamentally different competitive position, leading ultimately to a medium-term step-change in financial performance. The significant first year progress also impresses as it builds the momentum for the larger effort of the, third phase, “Grow” which will likely start sometime in 2017. Key FY16 financial/operational highlights include; (1) purchasing and factory efficiency initiatives drove the gross margin up 120bps; (2) cost initiatives saw the SG&A/revenue ratio improve by 270bps; (3) adj. EBITA rose +130bps; (4) Customer Service Levels increased 200bps to 98.7%; and (5) Net debt to EBITDA fell to 1.7x from 1.9x whilst net gearing declined to 59%. We increase our FY17 adj. EBITA by 5% to £40.9m to reflect the underlying progress made (with €-driven translation benefits offsetting the adverse effect of increased €-denominated transactional costs). Continued progress and the benefit of likely increased group volumes prompt us to raise our FY18 adj. EBITA by 1% to £46m. We reiterate our BUY and move our TP to 210p (vs 200p).
Today’s FY16 (y/e June) trading update delivers another mild, but highly encouraging, positive profit surprise. FY16 adj. EBITA is now expected to be c.£36.1m, a 4% upgrade relative to our forecast of £34.7m, in turn upgraded by c.5% at H1 FY16 results in February. Despite a well-flagged -1.9% (cc) fall in revenues, FY16’s positive profit surprise is again driven mainly by better than expected cost-savings initiatives but also by complexity-simplification-driven purchasing savings. This update should serve to further build investor confidence that management is on track to deliver against all its stated financial objectives - an effective doubling of both EBITA margin to 7.5% and ROCE to 25- 30% over the next 3-5 years driven by; (1) significant customer/SKU rationalisation; (2) manufacturing/operational excellence; and (3) better leveraging of fixed costs. We raise our FY16 EPS by c.5%, but keep our FY17 EPS unchanged as we prefer to remain prudent for now. Reiterate BUY and 200p Target Price.
McBride’s restructuring programme is under way and starting to deliver major benefits. The business is being streamlined and the reduction in complexity is significantly lowering cost, improving reliability and hence the ability and scope to serve the more profitable customers. Once this is complete, the group will operate at a lower cost and with far fewer constraints, thus presenting material savings, and with the potential to build further growth in the medium term.
The excellent H1 progress, demonstrated by strong profit and margin improvement, is likely to build confidence that MCB can deliver a sustainable recovery with its strategic transformation plan (launched in September 2015). Actions associated with this plan, which should lower H2 revenues, are expected to provide further progress in profitability. As a result, the Board is now expecting FY profits to be modestly ahead of its previous expectations. We retain our Buy recommendation and 200p target price.
McBride expects underlying H1 trading results to show further overall progress, particularly when compared with H1 of last financial year, benefiting from actions associated with simplification, streamlining and cost initiatives. Group revenues on a constant currency basis increased 0.4% in H1. We retain our Buy recommendation and 200p target price.
McBride has made a solid start to the year with trading in Q1 (Jul-Sep 2015) in line with the Board's expectations. Group revenues at constant currency were slightly ahead of the same period last year. We retain our Buy recommendation and 200p target price.
The time of being all things to all men is over. Going forward it's about simplification, killing complexity and significantly reducing the cost base. The plan to cut 80% of its customers and reduce its SKUs by 30% is a significant part of a comprehensive transformation phase, which should drastically improve the profitability and returns of the business over the next 3-5 years. Despite the strong bounce in the share price, we believe the shares remain modestly valued. We increase our target price from 150p to 200p and retain our Buy recommendation.
Despite challenging conditions full year results exceeded our expectations, as earnings recovered strongly. The company announced a transformation plan, aimed at repositioning the business and targeting EBITA and ROCE margins of 7.5% and 25-30% respectively in the next 3-5 years. We increase our target price from 110p to 150p and retain our Buy recommendation.
The trading update confirms that adjusted operating profit for the full year is in line with the Board's expectations and that the UK restructuring programme remains on track. We retain our Buy recommendation and 110p target price.
