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McColl's bosses on a 'once in a lifetime' Co-op deal

The damage to underlying sales growth was masked by the convenience chain's biggest transaction to date
July 27, 2016

Half-year figures from convenience chain McColl's (MCLS) were somewhat overshadowed by the group's recently announced plan to buy 298 stores from grocery rival The Co-operative Group for £117m. The acquisition was revealed just one week before half-year numbers hit the market, and helped mask a 2.2 per cent dip in like-for-like sales during the six months to May.

IC TIP: Hold at 148p

McColl's strategy is increasingly based on such buy-and-build growth - something made all the more evident by a 1 per cent improvement in underlying sales from recently acquired and converted stores during the reported period. But chief executive Jonathan Miller said the Co-op deal was a "once in a lifetime" chance to significantly expand the company's store estate and drive up future sales and profits.

Chief financial officer Simon Fuller said he envisaged future shareholder returns increasing significantly as a result of improved cash flows post-deal. The half-year dividend is flat, but were it not for the enlarged share capital following the Co-op deal fundraising, it would represent a 10 per cent increase.

Broker Numis is restricted from updating research on McColl's due to their involvement in the transaction, but previously had expected pre-tax profit of £20.5m for the year ending November 2016, giving EPS of 15.6p, compared with £21.7m and 16.5p in FY2015.

MCCOLL'S (MCLS)
ORD PRICE:148pMARKET VALUE:£170m
TOUCH:145-153p12-MONTH HIGH:175pLOW: 126p
DIVIDEND YIELD:6.9%PE RATIO:9
NET ASSET VALUE:108p*NET DEBT:34%

Half-year to 29 MayTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20154597.65.63.4
20164698.26.13.4
% change+2+8+9-

Ex-div: 11 Aug

Payment: 9 Sep

*Includes intangible assets of £147m, or 128p a share