Gamble of the week: A troubled generics maker

published 27 January 2014

Money is tight for a lot of households in Britain just now, which means lots of them are trying to save money where they can. The spectacular and growing success of discount supermarkets such as Aldi and Lidl is proof of this.

Historically, one of the easiest ways to save money has been to switch from more expensive branded goods to cheaper, unbranded ones. This is one reason why, in recent years, supermarkets have been very keen to promote the quality and relative inexpense of their own-label products as a key point of difference when wooing thrifty customers.

You'd think that these trends would have been good news for McBride (LSE: MCB), which is Europe's leading manufacturer of private-label household and personal care products (such as dishwasher tablets, washing liquids, bleaches, shampoos and toothpastes).

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Unfortunately, that's not the case. The company always seems to be fighting fires. On the one hand, it has the dubious pleasure of selling to some of the toughest customers in the world Europe's supermarkets who seem constantly to be demanding lower prices. On the other hand, high oil prices have driven up the price of plastics one of the company's major costs.

To make matters worse, the manufacturers of branded products have been competing ferociously for customers by heavily promoting their goods in Britain. Faced with the choice of an own-label product and a brand on special offer, many customers have plumped for the latter.

So which is it?There may be some hope for theoptimists. Demand for private-labelproducts is growing strongly in easternand central Europe as well as emergingmarkets. With take-home pay unlikelyto grow by much in the near future, theylook like they have a place in a growingnumber of shopping baskets.

McBride is hacking away at costs and becoming more efficient. It also looksas if it may have some good-qualitywashing liquid and dishwashingproducts to sell. So profits may wellrecover. Analysts expect earnings pershare to grow by nearly 20% next year if McBride can deliver this, then theshares could be worth a punt.

Verdict: risky buy

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.