McColl's Retail Group - Read all about it!

McColl’s Retail Group: So, we have forward progress, but not as fast or smooth as hoped, hence the shares being down markedly at 150p. These are maiden final results, covering the 53 weeks to 30th November 2014, and including some pre-IPO weeks. As well as that wrinkle, they have been adjusted to 52 weeks to aid comparatives. So we have revenue up 6.1% (with LFLs at 0.7%), EBITDA up 9.0% at £37.3m and headline pre-tax profits up nearly three-fold from £4.4m to £12.6m. Net debt is down at £25.7m from £60.5m. Pro-forma eps are 16.9p with a total dividend, covering 9 months, of 8.5p. The drive to enlarge the convenience store estate through conversion and acquisition continues. At the period end they had 799 convenience stores (including 60 bought in the year and 45 newsagents converted) and 516 newsagents. They continue also to upgrade the convenience stores to a premium format, now covering 489 stores, and to add post office facilities, which are currently in 451 sites. By the end of 2016 they plan to have over 1000 convenience stores.

So, that's all good then, although the second half did show slowing momentum. The sting in the tail is the comment on current trading. In the first 13 weeks of the current year, LFL sales are running at -1.2%, with total revenue at 3.8%. So both those metrics are about two percentage points behind the just reported figures and are worse than the recent 6 week update. The group claims some seasonality and tough comparatives, but the market has heard that kind of excuse too often over the centuries to cut that much slack. A worrying downward trend in LFLs is emerging. Given the backdrop of supermarket wars on and off High Street it seems prudent to put FY2015 down as ‘likely to be tough’. However, a small increase in sales, cost control and the full benefit of the stronger balance sheet, should still see pre-tax profits make progress. Modest progress from a pre-exceptional £17.9m to £20.0m, could produce eps of 15p, leaving the shares, at 150p on a PE of 10x. Allowing for a full year, the dividend could reach 10p, although on an underlying basis that is almost no growth. But it is still a yield of 6.6%. Net debt to EBITDA is heading below 1x, even after allowing for the store investment programme. This all reassures that a progressive dividend policy is realistic. So even in a tough trading environment, there is still a self-help story to follow here. The share price has been a misery since float and today there is no respite, but it is far too early to give up on the stock yet. (Neil Cumming^, 3^rd March2015)

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