How many own-branded goods end up in your shopping trolley each week? I’m guessing there are a fair number.

If so, there’s a good chance that some of them are produced by this week’s SIF Portfolio candidate, McBride.

This FTSE Smallcap listed stock produces private label household and personal care products. Judging from the pictures on the company’s website, the group’s customers include Sainsbury’s and Morrisons, plus others. McBride also has a few of its own brands, such as Oven Pride, but private label manufacturing is the firm’s main business.

After a troubled few years leading up to 2015, management launched a transformation plan with the slogan Repair, Prepare, Grow. This aimed to improve the profitability and quality of the firm’s manufacturing operations, before targeting fresh growth.

Progress so far has been encouraging. McBride’s return on capital employed rose from 5.4% to 16.5% in 2016 and cash flow has improved significantly. The group’s recent interim results showed a further improvement in profitability, with the company’s measure of return on capital employed rising from 23.6% to 28%.

To me, these figures suggest the firm’s transformation programme is working. The firm’s 2015 target was to reach an ROCE of 25-30% in three-five years. To put this target in context, the equivalent figure at the end of June 2014 was 12.7%.

McBride’s StockRank has risen from 83 to 93 over the last year and the firm has recently qualified for my Stock in Focus screen. The SIF Portfolio’s chronic need for defensive stocks means that McBride is a serious candidate for a buy, unless I find something nasty in the figures.

The right value

Paul Scott commented on McBride’s interim results on 22 February, noting that “that valuation looks about right to me”. The stock has risen by more than 10% since then, so am I too late to join the party?

Stockopedia’s ValueRank uses trailing twelve month (TTM) figures. Based on these figures I’d be tempted to agree with Paul’s view:

58e4a6c42fe59M2.png

A P/E of 16.4 seems reasonable but not cheap. The yield isn’t shown here, possibly because McBride has returned cash to shareholders through a B-share scheme rather than a dividend over the last year.

Shareholders have actually received 3.8p per share over the last twelve months, giving a yield of 1.9%. Again, that’s acceptable but…

Unlock the rest of this article with a 14 day trial

Already have an account?
Login here