McBride adds M&A angle

McBride is acquiring Danlind for £10.8m in cash, and £28m in acquired debt, increasing the buyer's presence in the automatic dishwasher market and the commercial laundry sector. It suggests the wider recovery story for the company – which we’ve followed since its inception – is now firmly in its second stage as profitability and cash generation improve. McBride expects the acquisition to be immediately earnings enhancing, and deliver a return on invested capital of 8 per cent by year three.

Peel Hunt analysts refrained from making material changes to their 2018 forecasts, but did raise 2019 pre-tax profit projections by 2 per cent. Admittedly, Danlind is in a small loss-making position but analysts have identified improvements to be made in working capital controls, purchasing and distribution. This is also an area where the McBride team has a strong track record.

Chief finance officer Chris Smith said that although the target was identified “early”, McBride had to work on its own financial health before taking on acquisitions. This appears to have gone well: net debt at the end of the last financial year fell to £75.7m or 1.2 times cash profit, from 1.7 times a year earlier, while a recent refinancing wiped £2m from its annual debt servicing costs. The €175m (£159m) new facility even comes alongside an additional €75m portion marked specifically for potential acquisitions.

This is important, because integrating a new acquisition isn’t McBride’s only challenge. The group has put a stop to the potential disposal of its aerosol business – a division that was put up for sale in the 2017 financial year. Chief executive Rik De Vos said that while initial conversations had been positive, subsequent pressure on raw material prices led both parties to agree original offers were “unsustainable”. Instead, thanks to the unforeseen profit acceleration at McBride household goods division – which has largely offset prolonged weakness in European personal care goods – the board believes it can turn the division around single-handedly.

For those worried that the aerosols project could impinge on McBride’s wider margin recovery, which its turnaround strategy has hinged on, fear not. Mr Smith says aerosols will remain separate to the rest of the group, with a dedicated management team and a specific performance break-down. In the meantime, operating margins are moving in the right direction, up to 5.9 per cent on an adjusted basis for the year ended June, from 5.3 per cent the year before.