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Research: Consumer
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 |
Improving backdrop with cautious optimism
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Consumer |
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3 March 2023 |
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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.
Improved performance through H1
Group revenues were £426.3m in H1, 31.8% ahead of the prior year, or +30.3% at constant exchange rates. Adjusted PBT was a loss of £7.9m, an improvement versus the loss of £16.9m in H122. Net debt was steady at £169.4m (vs £164.4m as of end June). We note the adjusted operating loss of £1.3m was close to break-even for H123, with monthly EBITDA having been consistently positive since May 2022, and positive monthly adjusted operating profit since November 2022.
Strategy development
The Compass strategy was launched two years ago but was hampered by the pandemic. As cost inflation stabilises, management attention has increasingly turned to efficiency. The new Transformation plan contains seven overall programmes, which will support sales and margin growth on one hand and deliver cost savings and cash management improvements on the other. The business will migrate to a new ERP over the next three to four years, and the overall Transformation programme will support the targeted £50m cost benefit over five years.
Valuation: Re-rating conditional on stabilisation
McBride trades on 11.9x FY24e P/E and 5.0x FY24e EV/EBITDA, which is a sharp discount to the household sector. A re-rating is conditional on successfully delivering stable growth, improving margins and ensuring any cost savings and operating leverage fall through to the bottom line. The business has been subjected to significant headwinds, in particular over the past two years, but capacity utilisation of the industry as a whole remains a key factor in determining long term profitability.
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Consensus estimates
Source: Refinitiv, company data |
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Research: Investment Companies
According to BB Biotech’s (BION’s) investment team, the biotech industry remains in a very good position. Following a sell-off in the last two years, valuations are still close to the levels seen three years ago, reflecting ongoing challenges and despite the fundamental industry strength. In the sector, BION is differentiated from the Nasdaq Biotechnology Index by its concentrated portfolio (c 30 stocks). The investment team anticipates that 2023 will include multiple catalysts for the sector and for BION portfolio companies, including product launches, important clinical trial results, licensing deals and renewed M&A activity. During 2022 the investment manager, Bellevue Asset Management, strengthened the investment team with three new members (two data scientists and one neurologist).
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