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Gamble of the week: A troubled generics maker
This own-label products maker has had its fair share of problems, says Phil Oakley. But there is cause to be optimistic.
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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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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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
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