Good morning!

Stocks crossing my radar today are:

(Edit: the Photo-Me International (LON:PHTM) announcement wasn't interesting enough, so I've left it out.)

McColl's Retail (LON:MCLS)

  • Share price: 237.5p (-5%)
  • No. of shares: 115 million
  • Market cap: £274 million

Final results

I've just been reviewing the arguments for and against this convenience retailer. We last discussed it here in December at the full-year trading update, just after the fall of Palmer & Harvey, one of its major suppliers.

Thanks to the trading update, we already knew that LFL sales were +0.1% for the year ending November 2017 (improved from minus 1.9% the prior year).

Now we get these figures:

Adjusted EBITDA up 20.0% to £44.0m (2016: £36.7m)
Net debt increased to £142.2m (2016: £37.0m), in line with management expectations
Profit before tax increased to £18.4m (2016: £17.7m)
Basic earnings per share slightly reduced to 12.3p (2016: 12.8p)

Sales exceeded £1.1 billion so the pre-tax margin comes in at 1.6%.

Looking back at my previous writings on this stock, my criticisms have been less to do with the specifics of the company and more to do with the sector. I've suggested that it's too competitive to be attractive, while others have suggested that good locations and scale provide some form of a moat against competition.

There is no denying of course that margins are very thin, and that the chosen strategy of debt-fuelled expansion elevates the risk.

P&H: I also warned that the replacement suppliers for P&H (in administration) might be less generous on pricing, which would impact margins at 700 stores.

Today we learn that there have been "some availability issues" and then "further disruption" in the new financial year, following on from this issue.

We have put in place contingency arrangements, entering into a new short-term supply contract with Nisa on 4 December 2017 for the affected stores. We also began our new supply partnership with Morrisons (agreed in August 2017) earlier than previously scheduled to supply these same…

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