Good morning!
McBride (LON:MCB)
Share price: 80.25p
No. shares: 182.2m
Market Cap: £146.2m
Trading update - covering the six months to 31 Dec 2014 (note that the company's year end is 30 Jun 2015). McBride is a low margin manufacturer of personal & household goods, supplied to supermarkets.
It looks as if poor performance has now stabilised;
The key sentence is obviously the first one, saying that trading has been in line with expectations for H1.
Although checking the handy Stockopedia graphic on broker forecasts, the bar has been lowered almost continuously over the last year;
Net debt - has been a concern for me here, and I think the £90m figure reported today is still far too high. To put that into context, £90m net debt is almost 62% of the market cap, so it's a very material figure. That's fine as long as the bank remains co-operative, but if something goes wrong there are no guarantees that will remain so. Maybe I'm too risk averse on debt, but having seen first hand how banks behave when they get the jitters, investing in highly geared companies strikes me as an unnecessary risk to take. Especially when the shares are not particularly cheap anyway, as in this case.
Valuation - as you can see from the usual Stockopedia graphics below, the PER and divi yield look superficially attractive. However, once you take into account the considerable debt, and the reality that the divi looks stretched, then it doesn't look so cheap after all.
The quality scores are poor because the figures from last year are loss-making, but even in good years the operating margin is low - c.2% from 2011-2013.
My opinion - Given the unprecedented battle underway between supermarket chains in the UK, they must be squeezing their supply chains like never before. Therefore I'm trying hard to avoid any companies which supply them, since I reckon any profit will be ruthlessly hacked away by the supermarkets.
On the other hand, the UK turnaround plan sounds intriguing. Today's announcement indicates "targeted savings of £16m by 30 Jun 2015" - it's not entirely clear if those savings will drop straight through to improved profits, or only partially? Broker forecasts already predict a significant improvement in profits next year - up from £11.4 to £16.7m, so quite a bit of upside…
