McBride Plc

McBride Plc (LON: MCB) is an FTSE All-Share index listed household goods company. It provides personal care and private label household products and supplies these to Europe based retailers.

On 7 September 2021, MCB would announce its FY2021 annual results.

Investment Rationale – SELL at GBX 91.00

• The management expects a double-digit price surge in its plastic and core chemical raw materials in FY2021.
• The management anticipates H2 FY2021 constant currency revenues to be ~6% down YoY.
• Due to extreme volatility in raw material prices, the management refrains from providing guidance for FY2022.
• On the leverage front, the debt/equity ratio since FY2016 has been significantly higher than the industry median of 0.53x.
• In the last year, the stock generated a decent return of about 48.49%, offering investors an opportunity to book a decent profit.
• The stock is trading very near its 52-week high price of GBX 97.80, raising doubts about its upside potential.
• From a technical standpoint, 14-day RSI at about 57.11 is moving towards the overbought zone. Hence, there could be potential short-term downward movement in the stock price.

Key Risks

• MCB’s performance is negatively impacted by increased competition and changing consumer trends, impacting its margins.
• The further disruptions in the supply chain could affect MCB’s inventory. Hence, both the top line and costs could rise.
• Due to its international operations, negative FX impact could affect MCB’s operations.

Q3 FY2021Trading Update (released on 5 May 2021) 

• During Q3 FY2021, there has been a significant and sustained price surge in MCB’s raw materials. In particular, plastic and core chemical raw materials saw the highest price rise.
• Liquids division was most impacted by this raw material price jump. However, the impact was felt across a number of the divisions.
• Volatility of revenue is seen in most of MCB’s markets, with sales of laundry and personal care products being muted.
• MCB has taken several cost initiatives to recover its margins.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Conclusion

The management expected lower revenues and higher raw material costs for FY2021 and beyond. Revenue volatility continues to be a significant challenge. Meanwhile, the stock is trading very close to the 52-week high of GBX 97.80. The management also could not provide guidance for FY2022. The stock made a 52-week low and high of GBX 54.55 and GBX 97.80, respectively. 

Considering the potential headwind against raw material costs, higher leverage position of the Company than the industry, and lack of guidance from the management, we have given a “SELL” recommendation on McBride Plc at the closing market price of GBX 91.00 (as of 30 June 2021), while we will revisit our stance based on the analysis of future corporate announcements released by the Company. 

Ramsdens Holdings Plc

Ramsdens Holdings Plc (LON: RFX) is an FTSE AIM All-Share index listed company that is a growing and diversified financial services provider with a portfolio of over 130 stores.

Investment Rationale for Valuation – SELL at GBX 172.50

• RFX suffered a net loss in H1 FY2021 from a net profit in H1 FY2020.
• Due to uncertainty, the management could not provide any guidance for FY2021.
• In the last six months, the stock generated a decent return of about 29.21%. Hence, it is an opportunity for investors to book a decent profit.
• The stock is trading near its 52-week high price of GBX 178.00. Hence, there is doubt about its upside potentials.
• From a technical standpoint, 14-day RSI at about 65.11 is sustaining below the overbought zone, indicating a potential short-term downward movement in the stock price.

Key Risks

• Retail jewellery trading continues to be challenging with muted consumer spending.
• Continued losses could put pressure on the liquidity position of RFX.
• Muted consumer confidence and consumer spending could impact RFX’s top line and margins.

Financial Highlights (for the six months ended 31 March 2021 (H1 FY2021), as of 15 June 2021)

(Source: LSE Website)

• Due to challenging trading conditions caused by Covid-19 restrictions, gross revenue was down 23% YoY in H1 FY2021.
• It resulted in gross profit for H1 FY2021 being down 37% YoY to £10.5 million.
• RFX’s operations became loss-making with loss before tax of £0.1 million in H1 FY2021 from profit before tax of £2.3 million in H1 FY2020.
• Due to the lack of profitability, the management decided to suspend dividends for H1 FY2021 and preserve cash. Net cash improved to £15.0 million in H1 FY2021 from £11.1 million in H1 FY2020.
  

One Year Share Price Chart

(Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

RFX delivered a comparatively muted performance in the face of the Covid-19 restrictions.  Also, the shape and speed of the recovery from the Covid-19 pandemic remain uncertain, and the management could not provide detailed guidance for FY2021.  Hence, it would be prudent to liquidate the position at a profit as the stock is also trading near its 52-week high, indicating overstretched valuation. Overall, we do not have significant catalysts to support an uptick in the stock price and recommend exiting the position currently. The stock made a 52-week low and high of GBX 107.10 and GBX 178.00, respectively.

Considering the lack of detailed guidance, loss-making operation in H1 FY2021, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Ramsdens Holdings Plc at the closing market price of GBX 172.50 (as of 30 June 2021), while we look forward to reinvesting based on how the performance improves following lockdown easing.

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

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