McBride's rock-bottom rating

McBride's woes lie largely within its UK business. UK sales fell 10 per cent to £259m in the year to the end of June leading to a 70 per cent dive in underlying profits to £4.2m. Competition in the UK has been fierce and "prolonged promotional activity" by brands has hurt sales of McBride's retailer own-label products. In reaction, McBride is cutting costs and jobs while upgrading manufacturing.

This recovery plan was put in place by former chief executive Chris Bull who stepped down on 18 December. Replacing Mr Bull will be Rik De Vos, an experience chemicals industry executive with experience of turnaround situations. He's joining from £155m Belgian quoted company Rectice where he was a global general manager. Mr De Vos will start work some time in the first quarter. Meanwhile, a new finance director, Chris Smith, starts on 7 January joining from Aim-listed manufacturer API. News of Mr De Vos's appointment took the market by surprise, but investors were assured there was no material change to trading to report - a more detailed half-year update is due on 5 January.

One issue facing the new team will be McBride’s untidy balance sheet. At the end of June net debt stood at £84.7m and restructuring costs should see borrowings peak mid-way through 2015. Despite the debt, the old management had stayed committed to the generous dividend, even with cover getting increasingly thin. The new brooms may well sweep such a generous payment aside, but we believe there are far greater prizes on offer should things go well.

During Mr Bull's tenure, which began in May 2010, profitability plummeted amid intense competition from brands. If the market gets a sniff that margins are being restored there should be considerable upside on offer, which is inherent in the miserly 30p-to-the-pound value currently being put on McBride's sales. Work has already begun to restore profitability with plans to save £12m a year by June 2016 and any one-off costs associated with reshaping the business aren’t expected to repeat in the current financial year. A falling oil price will also provide a very welcome tailwind as about 60 per cent of McBride raw material cost are based on the commodity, according to broker Numis.

And McBride's business in the rest of Europe is actually faring well. Last year, revenues rose 2 per cent to £419m, with profits soaring 38 per cent to £19.8m. France, Italy and Spain continue to be tough geographies for McBride but strong sales growth in Germany is encouraging following investments there.