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.
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McBride |
Repairs complete
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Consumer |
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8 September 2017 |
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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.
Holding up in a challenging environment
FY results were in line with expectations and trading in the new fiscal year has had a satisfactory start. Revenue pressures remain, but the company's unrelenting focus on cost and efficiency should continue to mitigate them. Management expects performance to be weighted towards H2 – a reversal of the trend in FY17 – as most of the raw material cost increases seen last year will be more evident in H1, with comparatives easing in H2. The current trend for food price inflation makes it hard to pass on price increases in other consumer categories such as household, which is not helpful, and the termination of the PCA (aerosols) business sale is an additional distraction as the business needs to be reintegrated into the company.
Contract manufacturing and I&I: New growth?
As outlined at the H117 results, there is an increased trend towards contract manufacturing. Branded manufacturers are increasingly under pressure to review cost structures, and McBride has engaged meaningfully with a number of potential customers. These projects will take a while to come through, but progress is nonetheless encouraging as the segment could be a new area of growth. Separately, the Danlind acquisition brings a new channel to McBride Institutional and Industrial (I&I: hospitals, hotels, restaurants etc). This is a segment where the company has no historical presence and could provide an interesting new growth opportunity if McBride chooses to expand the I&I business beyond Danlind's Danish core.
Valuation: Turnaround yet to be reflected
McBride trades on 12.6x FY18e P/E and 11.0x FY19e P/E, which is a sharp discount to the household sector. A re-rating is conditional on successful delivery of the turnaround programme and ensuring that cost savings fall through to the bottom line; so far the results have been encouraging. Adjusted EBITA margin continued on the right trajectory and was 5.9% for FY17, the net debt cover ratio (net debt/EBITDA) was down to 1.2x (this will rise post-Danlind) and ROCE was 27.7%.
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Consensus estimates
Source: Bloomberg |
EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Disclaimer
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Disclaimer
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Research: TMT
Vectron Systems continues to benefit from regulatory tailwinds, achieving revenue growth of 26% in H117 after the 30% growth reported in FY16. This translated to operating margin expansion of 6.7 percentage points year-on-year to 14.9%. The company expects the new GetHappy app to be launched in FY18; this has the potential to provide significant upside to Vectron’s earnings. We do not believe that this is currently factored into consensus forecasts although the share price reflects some level of success for GetHappy in our view.