McBride – Very Strong ‘Own Label’ Sales Makes This A Buy

Following along the ‘never catch a falling knife’ theme I consider that now might well be the time to take a positive view on the shares of McBride (LON:MCB).

I have followed the ups and downs of this group for years, and following its Covid-19 interruption, the group’s Strategy Plan of a few years ago could well be ready to bear fruit.

Last Friday morning the group issued a Trading Update for the year to end June – it was really quite positive in its content, certainly enough to see its shares pick up 20% to close at 31.15p.

The Business

Set up 96 years ago, today McBride is Europe’s leading provider of private-label and contract-manufactured products for the domestic household, professional cleaning and hygiene markets.

The Manchester-based group, which employs around 3,000 people across 18 locations in 12 countries, derives some with 75% of its revenue derived from the top five European economies.

It sells private label household and personal care products to retailers and brand owners in the UK, Germany, France, Australia, rest of Europe, rest of Asia-Pacific, and internationally.

The company operates through five segments: Liquids, Powders, Unit dosing, Aerosols, and Asia Pacific.

The Liquids segment offers laundry detergents, dishwasher liquids, and surface cleaners, as well as bleach.

The Powders segment offers laundry, auto dishwashes, stain removers, water softeners, and powdered cleaning products.

The Unit dosing segment provides auto dishwasher tablets, laundry capsules, and water softeners.

The Aerosols segment provides household, personal care, insecticides, sanitizers, and professional cleaning products.

The Asia Pacific segment offers hand/bodywash and hair care products, skin care products, auto dishwasher tablets, and laundry liquids.

It offers products under the Surcare, Oven Pride, Clean N Fresh, Hospec, and Actiff brands.

Sales Per Region And Business

On a sales per business, it Liquids represented 56.6% of the previous years turnover, Dosing 25.3%, Powders 10.1%, Aerosols 4.7% while the Asia Pacific segment accounted for the balance 3.3%.

The per region basis showed that the UK was 22.2% of sales, Germany 21.1%, France 20.7%, Other Europe was 32.1%, Australia accounted for just 1.3%, Other Asia Pacific some 2.2%, leaving the Rest of the World the balance 0.5%.

Full Year Trading Update

The group reported that its last full year will have seen a return to profitability following the exceptional input cost inflation of the past two years.

It referred to driven post Covid-19 supply chain disruptions, and then by the associated economic and inflationary impacts of the war in Ukraine.

Encouragingly the year’s volumes were up 5.4%, thanks very much to a strong 12.7% growth in the fourth quarter. 

The company stated that the improvement in demand for its products had been driven by a combination of business wins and strong demand increases on existing contracts. 

Importantly it noted that across most of its markets it is evident that there was a shift to private label as consumers increased their preference for better value, high quality, private label products as they sought to reduce the effects of inflation on household budgets.

As a result of the strong fourth quarter trading performance, the group now anticipates that adjusted operating profit will be materially ahead of current market expectations – which were looking for an adjusted operating profit of between £8.0m to £13.0m and leaving net debt at around the £181.0m to £186.0m level.

We will be seeing the finals being announced on 19^th September.

The Equity

There are some 174m shares in issue.

The larger holders include Teleios Capital Partners (24.90%), DUMAC Inc (17.65%), Zama Capital Advisors (12.07%), Aberforth Partners (6.62%), Goldman Sachs Advisors (5.52%), Invesco Asset Management (5.14%), Blackwell Partners (5.13%), Premier Fund Managers (2.69%), SMA Gestion (1.97%) and Syd ABB (1.60%).

Brokers’ View – Consensus 37.5p Price Objective

Brokers Peel Hunt upgraded its forecast for the last year, having previously been expecting a £2.8m loss, it is now suggesting that the group will have broken even.

Their estimates for the current year to end June 2024 have been upgraded and they are now going for a pre-tax profit of £12.0m.

My View – A New Target Price Of 38p

In the last year this group’s shares have been as low as 15.25p,

For some months they have been trading within the 23p to 30p price band.

They had been resting at around the 26p level prior to the Trading Update, the second of this year, and were traded up to 32.40p at the best in Friday’s dealings.

I now take the view that this group could well become a beneficiary in these inflationary times. As households continue to tighten their belts, it is obvious that spending on ‘own label’ products will improve.

And that is just what McBride is all about –manufacturing quality ‘own label’ products for leading retail groups.

Even though its shares have already seen an advance in reaction to the recently stronger trading news, I do feel that there is a great deal more upside to go for at the current 31.15p.

I now fix a new Target Price of 38p for the current trading year to end June 2024.