McBride — Improving backdrop with cautious optimism

Research: Consumer

McBride — Improving backdrop with cautious optimism

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.

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Consumer

McBride

Improving backdrop with cautious optimism

Consumer

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3 March 2023

Price

26.1p

Market cap

£46m

Share price graph

Share details

Code

MCB

Listing

LSE

Shares in issue

173.5m

Business description

McBride is Europe’s leading provider of private-label and contract-manufactured products for household and professional cleaning markets. The group employs over 3,000 people across 18 locations in 12 countries, with around 75% of revenue derived from the top five European economies.

Bull

Management is focused on profitable growth.

Cost-conscious consumer environment is supportive of private-label products.

New Transformation programme should help to deliver more savings.

Bear

Input costs remain volatile. 

Private-label detergents continue to be an intensely competitive space. 

Execution risks with the future strategy and turnaround programme. 

Analysts

Sara Welford

+44 (0)20 3077 5700

Milo Bussell

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

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.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/21

682.3

19.9

11.7

0.0

2.2

N/A

06/22

678.3

(29.6)

(11.7)

0.0

N/A

N/A

06/23e

873.7

(7.9)

(4.6)

0.0

N/A

N/A

06/24e

910.4

5.4

2.2

0.0

11.9

N/A

Source: Refinitiv, company data

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This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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