Mccoll's Retail Share Discussion Threads

[aleman] 04/12/2018 12:59

The Nisa supply deal for the 1000 stores and 300 newsagents ran to June 2018 but Morrisons started phased supplies from January. The Coop deal runs to March 2020 so I suppose Morrisons will start to phase in from next autumn. Morrisons now has a year of experience of supplying most smaller MCLS stores and will soon start supplying the bigger ones. It will understand the market better. Maybe they'll take that experience elsewhere and leave these supply contracts vulnerable or maybe they'll buy MCLS while its cheap and secure significant revenues of larger stores for peanuts (perhaps closing or flogging less profitable stores)? I think somebody will buy MCLS eventually. It just needs cleaning up a bit but it will cost more then. Why not buy it while it is cheap? These are just my thoughts - thinking out load, if you like.

I appreciate your comments. Thanks.

[loganair] 04/12/2018 12:00

The Coop Stores that McColl's purchased are still using Nisa distributed products until 2020 and are not covered in the agreement with Morrison's to supply Safeway products until the Nisa contract comes to an end.

[aleman] 04/12/2018 11:51

Yes. A 25% takes it to about 8p!

Are MCLS refreshing the larger Coop stores and branding them to Safeway, so saving face for Morrisons (as shareholders might not be keen on another go)? They might then sell them on if the experiment is successful. Morrisons clearly didn't have the required expertise a few years back. MCLS might be doing their development work for them - for a profit!

[loganair] 04/12/2018 11:46

If Morrison's did ever take over McColl's there would be significant savings on distribution costs and mangement and office staff.

[loganair] 04/12/2018 11:45

I understand Liberum say the dividend maybe cut by as much as 25%.

What I hear from Morrison's they are happy to let the Safeway products run in McColl's to see how it goes. Many of McColl's Convenience stores are much smaller then the equivalent that Tesco and Sainsbury's are and therefore on the small side for Morrison's.

[aleman] 04/12/2018 11:28

I think Mr Mould is behind everyone else. Most are suggesting a dividend cut. Liberum's forecast says 8p this year and 8.2p for the year ending 2019, so a forward yield of just over 10%. That's a smaller cut than I anticipated when buying in so I'll consider buying more if they get any cheaper. Hopefully, proceeds of the dividend cut will generate a bit more cash to speed up the store refreshes which are bringing increased turnover. If they can get EBITDA back up to £45m+ more quickly by doing this, £100m debt is no problem and a more sensible valuation will ensue.

I have read a couple of articles that mention potential Morrisons interest again. They made a mess of their last foray by buying all wrong sites from Blockbuster's administrators before selling out 3 years ago. There's a lot of competition for the best sites. There are a load going here very cheaply now at only £60k each. Granted they were a bit larger on average and 40% were freehold but MCLS paid £400k per site for the Coop stores it bought.

[loganair] 04/12/2018 10:33

Russ Mould, investment director at AJ Bell, said: 'That begs the question whether the dividend will also be cut at the end of the financial year.

'The grocery industry is incredibly competitive and operators have to do everything they can in order to drive sales and keep costs under control.

'Any slip-up can have disastrous consequences and put a business back both financially and strategically, and that's exactly where McColl's sits today.'

[loganair] 04/12/2018 10:25

My nearest McColl's is one of their orginal news agents. When I was young, did well as was the only store of this type in the area, however today there is a Co-op next door, Waitrose and Aldi and therefore this very small news agent is now being crushed, vertually no customers.

The McColl's that is 4 miles away, is a conveniece store in the middle of a council estate. This has a steady stream of elderly customers who do not drive, the young who are just hanging out and customers who are topping up. The problem I see is that this store only sells small packets of things, the biggest washing power they sell is just 1.5kg. They are also very expensive.

[diku] 03/12/2018 23:16

Where ever there is McColls there will be a Lidl/Aldi store nearby...

[danny baker] 03/12/2018 22:54

loganair, I don't think the 66 stores were lossmaking - just underperforming without making much of a contribution. This actually is one of the big problems for McColls - the lack of profitability is spread throughout the stores portfolio. As long as a smaller store covers its rent, rates and staff costs, the working capital benefit of receiving cash payments from customers a few weeks before paying trade creditors means it doesn't cause much of a problem. Hence the comment that most stores that are closed were nearing the end of their leases. Personally I think McColls is in serious long-term decline. The move to increase fresh and chilled food with higher margins is a gamble but I'm not sure what else they can try. Sadly the core business is now just not profitable enough to sustain the company long-term and it needs one off boosts like world cup stickers, spells of hot weather etc to lift returns. Would Morrisons want to buy it? I think they'll be happy enough with the existing relationship without the hassle of owning all those shops.

[loganair] 03/12/2018 17:24

I have posted several times how McColl's needs to close down many of their news agents as many are not profitable and I like in this trading update how they closed 66 loss making news agents and their smallest convience stores.

And what about the richest man in Estonia who around a year ago bought a 10% stake for around 275p a share.

[danny baker] 03/12/2018 17:17

I think a big question is whether or not the respected smaller companies fund managers Miton and Chelverton have been selling today. They were adding earlier this year. Which direction their shareholdings go now will be watched very closely.

[pj fozzie] 03/12/2018 17:08

"Unfortunately these falls are never restricted to the day of the warning . It will go down tomorrow"

- well we won't have to wait too long to see if that prediction is right!

PJ (fingers crossed, hoping John is proved wrong)

[john09] 03/12/2018 17:04

Unfortunately these falls are never restricted to the day of the warning . It will go down tomorrow

[wunderbar] 03/12/2018 17:01

Maybe foolishly I've topped up again at 84p. The fall of 30% does seem overdone when you consider profit warning is attributable to circumstances beyond company's control with the collapse of Palmer & Harvey in November 2017. What the market obviously doesn't like is fact McColls used same excuse at Interims and to be honest after reading the Q3 update in Sept I was under the impression distribution issues had been resolved [obviously not]. If you believe management when they say Morrisons distribution is now bedded in then this fall should merely be seen as a blip and this time next year share price should've recovered back to c.120p. However any further announcements about continued supply chain issues will seriously damage management credibility and no doubt the share price too. Like others I expect and welcome a cut in dividend on the basis they use the proceeds to cut debt. Right now you have to look at the stats - market cap £96m, estimated FY profit £35m, debt c.£100m. On this basis MCLS does appear cheap though some might say for good reason.

[pj fozzie] 03/12/2018 14:12

Hmm, well with the benefit of hindsight in a few weeks time I will know if I have been smart today, or really really stupid, but I can't help myself. I'm sure the fall is seriously over done and I've just bought a load more at just over 83. I'm still underwater overall on my McColls holding - but hopefully this will prove to have been the right move rather than another Carillion.

Cheers,
PJ

[cheshire man] 03/12/2018 14:01

Aleman,,,,,Thinking about a Morrisons take out,at first I thought stores would be to small but no doubt they would be buying location so one would weigh against the other.....getting rid of the newsagent side of course....so maybe,,,,,,will just have to wait and see......of course someone else may be now having a look at them too

[loganair] 03/12/2018 13:55

Strange so many 2,070 trades have gone through.

[loganair] 03/12/2018 13:54

Aleman - Closing unprofitable stores, especially the news agents McColl's own will also increase EBITDA.

[aleman] 03/12/2018 13:37

2 x 200k gone through but no price movement since, though, so expect more.

[peterpan26] 03/12/2018 12:59

they should appoint a ceo for starters

[aleman] 03/12/2018 12:45

Next question - when do Morrisons take these out at a bargain 120p?

[aleman] 03/12/2018 12:38

In buying in, I've assumed that the dividend could still be paid at 10.3p but it's more likely to be cut to a 3.4p final making a total of 6.8p. That would release about £4m per year to reduce debt over and above other measures. That would still leave the yield at 8.2% and leaves the prospect of EBITDA pushing £40m and debt getting down towards 2 in the near future. If they can open a few more convenience stores to increase EBITDA, all the better. Such figures should cause no worries to banks when negotiating refinancing.



There has been a strong run of buying in the last two hours but the price has not risen. There must be a big sell in the background. Perhaps the shares will recover a bit when it is out of the way.

[cheshire man] 03/12/2018 12:33

I also think the drop is overdone and have taken a few,,,,,,even as you say DB with a possible reduction on the divi it will a very good return :-)

[danny baker] 03/12/2018 12:11

The board have highlighted the expiry of MCLS's borrowings in 2021. Ahead of this they will want to reduce debt to as low as possible. More sales and leasebacks and a reduced final dividend would be consistent with that strategy. Still surprising how badly the shares have reacted to a statement basically just reminding people how competitive trading is on the high street.