Shares for McBride, a provider of private-label and contract-manufactured products, look likely to rise, according to analysis by Mark Watson-Mitchell of Master Investor.
Based in Manchester, England, the group sells its products to retailers and brandowners in the UK, Germany, France, Australia, rest of Europe, rest of Asia-Pacific, and internationally.
The company operates through five segments: Liquids, Powders, Unit dosing, Aerosols, and Asia Pacific.
"I have followed the ups and downs of this group for years, and following its Covid-19 interruption, the group’s Strategy Plan of a few years ago could well be ready to bear fruit," said Watson-Mitchell.
He pinpointed the group's Trading Update for the year end to June, released on 14 July: "it was really quite positive in its content, certainly enough to see its shares pick up 20% to close at 31.15p."
Aerosols represented 4.7% of the previous year's turnover. Respectively, liquids represented the largest share at 56.6%; dosing at 25.3%; powders at 10.1% and Asia-Pacific at 3.3%.
The per region basis showed that the UK was 22.2% of sales, Germany 21.1%, France 20.7%, Other Europe was 32.1%, Australia accounted for just 1.3%, Other Asia Pacific some 2.2%, leaving the Rest of the World the balance 0.5%, observed Watson-Mitchell.
"The group reported that its last full year will have seen a return to profitability following the exceptional input cost inflation of the past two years," reported Watson-Mitchell
It referred to driven post Covid-19 supply chain disruptions, and then by the associated economic and inflationary impacts of the war in Ukraine, he added.
"The company stated that the improvement in demand for its products had been driven by a combination of business wins and strong demand increases on existing contracts.
"Importantly it noted that across most of its markets it is evident that there was a shift to private label as consumers increased their preference for better value, high quality, private label products as they sought to reduce the effects of inflation on household budgets.
"As a result of the strong fourth quarter trading performance, the group now anticipates that adjusted operating profit will be materially ahead of current market expectations – which were looking for an adjusted operating profit of between £8.0m to £13.0m and leaving net debt at around the £181.0m to £186.0m level."
In terms of equity, he added that there are 174m shares in issue.
"The larger holders include Teleios Capital Partners (24.90%), DUMAC Inc (17.65%), Zama Capital Advisors (12.07%), Aberforth Partners (6.62%), Goldman Sachs Advisors (5.52%), Invesco Asset Management (5.14%), Blackwell Partners (5.13%), Premier Fund Managers (2.69%), SMA Gestion (1.97%) and Syd ABB (1.60%).
"Brokers’ View – Consensus 37.5p Price Objective
"Brokers Peel Hunt upgraded its forecast for the last year, having previously been expecting a £2.8m loss, it is now suggesting that the group will have broken even.
"Their estimates for the current year to end June 2024 have been upgraded and they are now going for a pre-tax profit of £12.0m."
Shares had been resting at around 26p prior to the Trading Update, and were traded up to 32.40p at the peak in Friday's dealings.
"I now take the view that this group could well become a beneficiary in these inflationary times. As households continue to tighten their belts, it is obvious that spending on ‘own label’ products will improve," said Watson-Mitchell.
"Even though its shares have already seen an advance in reaction to the recently stronger trading news, I do feel that there is a great deal more upside to go for at the current 31.15p," he added.
"I now fix a new Target Price of 38p for the current trading year to end June 2024."
Source: McBride – Very Strong ‘Own Label’ Sales Makes This A Buy - Master Investor
McBride shares predicted to rise
