From 'Share Cafe' into my inbox yesterday (cut and paste below).
MCP still falling in price and yield once again looks tempting. Problem is with MCP (of late) is that the profits and thus the payouts are continually falling. With everything going on in the Australian economy I believe it could well go lower before the cycle bottoms.
At some point it will be outstanding value and provide large (and growing) % yields for investors. I suspect, however, that we aren't at that point yet. I'll be waiting however just in case we get a repeat of 2009 and a large fund dumps at any price - those were the good ole' days for those with cash !!
Cheers
John
Skincare Putting A Glow On McPherson's
BY JAMES DUNN - 06/05/2015 |
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MCP - MCPHERSON'S LIMITED
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Over the last three years, McPherson’s has spent about $70 million on eight acquisitions, including health and beauty brands A’kin, Alchemy, Dr Lewinn’s and Revitanail, footcare brands Footcare and Maseur, and home appliance brands/businesses Think, Home Appliances and Lemair.
The 155-year-old McPherson’s Limited (MCP) is one of the most venerable businesses listed on the Australian Securities Exchange (ASX), but it has had to move with the times to stay viable – particularly recently.
McPherson’s supplies health and beauty, appliances, consumer durables (formerly called housewares) and household consumable products in Australasia, Asia, North America and southern Africa. The company manages some significant brands for overseas partners, but most of its revenue comes from its diversified portfolio of company-owned brands, including Manicare (beauty accessories), Lady Jayne (hair accessories), Dr LeWinn’s (skincare), Revitanail (nail strengthener), Swisspers (personal care products), Moosehead (male hair products), Maseur (foot massage sandals), Euromaid (appliances), Baumatic (appliances), Wiltshire (knives, cooking tools and barbecue implements), Stanley Rogers (cutlery) and Multix (cooking bags, films, wraps, paper and foils).
The company began business as a pig-iron trader, branching out into making hardware and machinery business. In 1938 the company partnered Sir Frederick Wiltshire in the Wiltshire File Company: McPherson’s bought this business outright in 1980. In the 1960s, it got into printing, with its printing division becoming the largest division, being Australia’s largest commercial printer, and holding the account to print Telstra’s White Pages and Yellow Pages directories.
But structural pressure built up on McPhersons in the 1990s and 2000s, most notably widespread brand rationalisation by its retail customers, increasing share of shelf space dedicated to private label ranges, and continued consolidation of the grocery market in Australia.
The company took its time re-moulding its business. In 2003, McPhersons’s bought Cork Asia Pacific for $101 million, and took over its Health and Beauty products, under such brands as Lady Jane and Manicare, creating a third division. More recently, in FY2012 the company sold the printing business, and in 2013 it bought 82% of Home Appliances Pty Ltd, an importer and distributor of large appliances, with an option to acquire the remaining 18% at the end of FY15.
Home Appliances is a major supplier of cooking-related appliances, selling about 100,000 units a year in Australia. It brought with it Euromaid, the 3rd largest cooking brand in Australia, with 12% market share. The Home Appliances range (which also includes the premium brands Elica and Fagor) is focused on ovens, cooktops and rangehoods and also includes microwaves, washing machines, dishwashers, BBQs and coffee machines: it came with strategic sourcing from a selection of world-class manufacturers, and strong relationships with major electrical goods retailers, including Harvey Norman, Good Guys, Bing Lee, Betta stores and Winnings.
Over the last three years, McPherson’s has spent about $70 million on eight acquisitions, including health and beauty brands A’kin, Alchemy, Dr Lewinn’s and Revitanail, footcare brands Footcare and Maseur, and home appliance brands/businesses Think, Home Appliances and Lemair.
In March 2014 McPherson’s bought the Lemair refrigerator and washing machine brand, and sold its Crown Glassware brand. In May 2014, was appointed exclusive Australian distributor of Trilogy natural skincare products. From August 2014 McPherson’s has been the Australian distributor for Procter & Gamble’s fine fragrance brands, namely Gucci, Dolce & **bana and Hugo Boss. Together these agencies will contribute revenue of about $35 million.
In November 2014 McPherson’s sold 51% of the Housewares division to the Fackelmann Group of Germany.
The overall strategy has been aimed at diversifying McPherson’s portfolio and reducing its exposure to currency volatility and the low-margin grocery and discount department-store channels – because these factors were making its own earnings volatile.
Private-label products now generate 15% of revenue. Last year, McPherson’s took over the supply of Coles’ Cook & Dine range of kitchen wear and introduced its Stanley Rogers tools and gadgets range into Coles.
McPherson’s exposure to the US dollar has fallen from 83% of revenue to 68% and its exposure to the lower-margin grocery channel has come down from 55% of sales to 40%. The higher-margin pharmacy channel now represents one-quarter of sales, up from 18% in 2012, while hardware stores and independent retailers account for 16% of sales.
The company has flagged sales from the grocery channel declining over time to about 20% of sales – especially if McPherson’s exits housewares altogether by exercising an option to sell its remaining 49% share of the Fackelmann partnership.
McPherson’s is also creating a new sales channel by expanding its online presence, developing dedicated websites for each of its key health and beauty brands, including Dr LeWinns, Trilogy and Alchemy and is working on a ‘master’ site selling all brands.
The “omni-channel” growth strategy requires less capital but should enable McPherson’s to strengthen its brand presence and relationship with consumers.
Evidence of how well the brand strategy is working is that Multix has grabbed top spot in kitchen bags, garbage bags, freezer bags, trolley liners, garden bags, foil, paper wraps and plastic containers. Not only has Multix toppled the Glad brand nationwide, Glad is no longer available across most of these categories in Coles supermarkets.
In FY14, revenue surged 18.1% to $353.4 million, but this was mainly due to the second-half effect of the Dr LeWinn’s and Think Tank Appliances acquisitions, and the full-year effect of the Home Appliances, Maseur and Footcare International acquisitions. Sales revenue from the continuing businesses was in line with FY13.
Net profit rose by 12.8% to $14.7 million, but earnings per share (EPS) fell by 5.9% to 15.9 cents, as a result of share issues. The full-year dividend was six cents lower at 11 cents, fully franked.
Then, for the half-year ended December 2014, sales rose by 3.3% to $186.6 million – or by 18.1% after taking into account asset sales – short of forecasts. Net profit slumped by 12.7%, to $9.3 million, as the rapid decline in the Australian dollar pushed up its cost of goods and sales fell short of forecasts. McPherson's declared an unchanged interim dividend of 6 cents a share, fully franked.
Health and beauty now account for 39% of revenues, up from 31% last year, and home appliances 18%, compared with 17%. Housewares now comprise just 14% of sales, down from 22% last year, and household consumables 25%.
McPherson’s predicts “significant” price increases in consumables and appliances in the current half to recover higher sourcing costs, and says the company is eyeing further acquisitions and agency agreements.
As it has transformed its business, McPherson’s has seen its share price slide from $3.36 in 2011 to the current $1.02 (which capitalises it at $99 million), but seems poised for a turnaround. In FY15, broking analysts expect EPS to improve slightly, from 15.9 cents to 16.1 cents, while the dividend loses a further cent, to 10 cents. But that prices McPherson’s on a tiny prospective price/earnings (P/E) ratio of 6.3 times earnings, and a fully franked yield of 9.8%. That is as cheap as chips, and the analysts that follow the stock concur: their consensus target price for MCP is $1.27, implying upside of 19.7% from the present. Plenty of investors will be prepared to take a punt on the stock on those numbers.
