McBride — Update 25 February 2016

McBride — Update 25 February 2016

McBride

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McBride

Turnaround under way

Consumer

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26 February 2016

Price

178p

Market cap

£324m

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Share details

Code

MCB

Listing

LSE

Shares in issue

182.2m

Business description

McBride is Europe’s leading provider of private-label household and personal care products, supplying 95% of Europe’s top 20 retailers. It has production capability in 11 countries and is growing a presence in Central and Eastern Europe, and South-East Asia.

Bull

Restructuring under way and clear path to leaner, more profitable business.

McBride’s size relative to its competitors provides it with scale and reliability advantages.

Cost savings starting to come through.

Bear

New strategy already bearing fruit, but execution risks remain.

Raw material pressures continue, specifically in plastics.

More competitive private label market.

Analysts

Sara Welford

+44 (0) 20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

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.

Repair

Although the next two years are likely to be mostly about the transition as the company goes through the ‘repair’ phase of its transformation, H116 results provided positive news as the outlook was raised. It has carved out the Personal Care/Aerosols (PCA) division and appointed a dedicated management team to devise a specific improvement plan, as the business was lagging and requires further measures beyond those being implemented for the Household division.

So far, so good

The new strategy was only presented six months ago, but the business simplification is under way and cost savings are already being delivered. Although cutting 75% of its customer base is difficult, all customers have now been informed. While we should not underestimate the challenges in delivering such comprehensive change within a company, cost savings are already starting to come through, and customer service levels have improved by a full 110bp. The medium term (three- to five-year) target of 7.5% adjusted EBITA margin and 25-30% ROCE should be achievable. While the H116 adjusted EBITA margin was only 5.1%, private label consumer peers have historically achieved high single-digit to low double-digit operating margins. We also note McBride’s H116 ROCE was 23.6%, which is approaching its medium-term target.

Valuation: Turnaround only just starting

McBride trades on 16.8x FY16e P/E and 14.0x FY17e P/E, which is a sharp discount to the household sector. The simplification of the business should provide a solid platform on which to build further growth. A re-rating is obviously conditional on the successful delivery of the turnaround programme and ensuring that cost savings fall through to the bottom line, but early signs are promising.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/15

704.2

21.7

8.3

3.6

21.4

2.0

06/16e

672.8

27.4

10.6

3.8

16.8

2.1

06/17e

659.8

32.4

12.7

4.4

14.0

2.5

06/18e

670.6

37.6

14.9

5.2

11.9

2.9

Source: Bloomberg

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New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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