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McColl's hurt by supplier collapse

The convenience chain lost a major supplier last year, and has scrambled to make sure business isn't too disrupted
McColl's hurt by supplier collapse

There’s little doubt that this has been a transformative year for retail chain McColl’s (MCLS) as it continues to integrate its acquisition of 298 Co-op stores, but last year’s collapse of wholesaler Palmer & Harvey (P&H) has proved to be quite a distraction. Pre-tax profits, although up by 18 per cent on an adjusted basis, fell short of analyst expectations by around £1.7m, reflecting stock availability issues shortly ahead of P&H’s demise. It has also had a knock-on effect on total like-for-like sales during the first 11 weeks of the new financial year, which were down 2.2 per cent.

IC TIP: Buy at 239p

Although broker Peel Hunt calls the Palmer & Harvey hit a “one-off”, it has forced fellow analysts at Numis to lower forecasts for the current financial year. Numis now expects pre-tax profits of £27m for the year ending November 2018, giving EPS of 19.1p, compared with £23.2m and 16.2p in FY2017.

But analysts agree that McColl’s has done its best to mitigate the fallout from P&H. The contingency plan involved entering a new short-term supply contract with Nisa for stores previously supplied by P&H, and starting its new supply partnership with supermarket group Morrisons (MRW) earlier than planned.

MCCOLL'S RETAIL (MCLS)   
ORD PRICE:239pMARKET VALUE:£275m
TOUCH:235-240p12-MONTH HIGH:301pLOW: 175p
DIVIDEND YIELD:4.3%PE RATIO:19
NET ASSET VALUE:*NET DEBT:£142m
Year to 26 NovTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20130.874.46.9nil
20140.9212.610.28.5
20150.9321.115.410.2
20160.9517.712.810.2
20171.1318.412.310.3
% change+19+4-4+1
Ex-div:19 Apr   
Payment:1 Jun   
*Negative shareholders' funds – the balance sheet includes £249m in intangible assets, or 216p a share.