- Investors have repeatedly shown that they prefer small caps when uncertainty fades and risk appetites return.
- McPherson’s, a small-cap entity has reported an underlying profit before tax of $22.8 million, and 133% growth in Dr. LeWinn's brand export sales revenue on pcp, in FY20 preliminary unaudited report ending 30 June 2020.
- The Group recorded a non-cash impairment of $10.6 million related to A'kin and Moosehead brands, as well as investment in Kotia joint venture.
- The Company has a strong balance sheet to accomplish suitable new merger and acquisition prospects in after COVID-19 environment.
Due to pandemic, revenues for most companies are expected to be extremely weak, as much of the world continues to fight against the spread of coronavirus. Everything fell under shutdown, during the early weeks of the crisis as investors sold their assets to raise cash or out of panic.
However, the situation did not result in driving away the investors from the attraction for small-cap valuations. They have consistently demonstrated that as volatility recedes and risk appetites return, they favour small caps.
McPherson’s Limited (ASX:MCP) is a small-cap company with a market capitalisation of $318.58 million (as on 28 July). McPherson’s is a publicly listed company which draws its revenue from household supply and personal care products. The company has operations in Australia, New Zealand, and Asia, and belongs to consumer staples sector.
Consumer staples sector is a core part of global equity portfolios. It includes companies whose businesses are less prone to economic cycles, and covers fruit, alcohol, and tobacco suppliers and retailers, as well as non-durable consumer goods and personal care companies. The sector also covers food & drug stores, as well as hypermarkets and super-centers for customers.
Consumer staple business has added nearly 6.5% to the Australian economy in financial year 2019-20 ended on 30 June, reflecting growth of 10.17% in past 1-year duration.
McPherson’s shares last traded at $3 on 28 July, up by 1.01% from the previous close.
MCP's FY20 results
MCP announced its preliminary unaudited results for the full year ended 30 June 2020, producing an underlying PBT (profit before tax) of $22.8 million, 33% growth on pcp from continuing business excluding 2 discontinued distribution relationships.
The Group anticipates reporting a statutory PBT standing at $13.3 million, with a $10.6 million pre-tax non-cash impairment in its A'kin and Moosehead brands and its investment in the Kotia joint venture.
The key performing indicators include:
- 11% rise in total sales revenue from continuing operations to $222.1 million in FY20 from $199.3 million in FY19/
- The strong result was due to growth in other owned market-leading brands Multix and Manicare combined with 75% growth in sales of Dr. LeWinn's brand.
- FY20 operating cash flow before interest and tax stood at $24.7 million.
- Key strategic investments in the Aware Group ($3 million) and the Kotia, Soulful and Sugarbaby joint ventures ($2.8 million) were made in FY20.
- Net bank debt, excluding lease liabilities, remains very low at $9.2 million, with the Group leverage ratio at 0.4 times.
McPherson’s CEO and MD, Mr Laurence McAllister stated that persistent stellar growth in Dr. LeWinn’s brand, China facing joint venture with ABM helped reach 16% growth in its owned brand portfolio despite a difficult situation for its consumers.
The FY20 results gained from the high demand for the MCP’s Multix brand, as citizens spend more time in their houses and alter behaviour, with a stronger emphasis on baking, frying, home cleaning etc.
COVID-19 impact on business
As per the Company's trading update dated 23 April, MCP had implemented a number of initiatives to minimise risk and ensured continuity of safe operations.
McPherson’s core six brands, Dr. LeWinn's, A'kin, Swisspers, Manicare, Lady Jayne and Multix, were performing in-line with expectations announced before the outbreak of COVID19.
Core brand Dr. LeWinn's continued to do well on the export sector, led by revenues in China due to a strategic alliance between McPherson and Access Brand Management (ABM), disclosed in November 2019.
McPherson’s supply chain, run by the Group's personnel in Hong Kong and Sydney, worked without major interruption throughout the COVID-19 timeframe, with management seeking to raise protection stock rates as a safeguard against any potential, subsequent waves of pandemic interruption.
Independent manufacturing facility Aware Group continued to positively support McPherson’s to make sure sustainable product supply.
Presently, the 3 joint ventures, 51% owned by MCP, namely Kotia, Soulful and Sugarbaby along with the Company’s operations in New Zealand and Singapore have been hit hard by coronavirus lockdowns.
Mcpherson maintains the rapid growth trajectory of its existing products, and jointly develop new products to be owned by the venture with ABM. MCP is increasing its involvement in the virtual content of its consumers, and in its own e-commerce website, recognising that the new atmosphere offers an ability to expand visibility and sales across these platforms.
Throughout March 2020 period, McPherson’s goods had experienced decreased discounting and other promotional spending by consumers, ensuing in increased margins.
McPherson’s emphasis on research and technology had witnessed it join the sanitation and immunity industry. In April, through a new partnership with Game On, it launched a hand sanitiser product and the Chemist Warehouse licensed Ozguard brand with $9 million of confirmed orders.
The Group is now well-positioned with a very strong balance sheet to implement suitable new merger and acquisition opportunities in the post-covid-19 atmosphere.
Further details include:
- $47.5 million debt facility, expiring on 30 June 2023, has been established with the support of NAB and Westpac; and
- MCP's Board expects to declare an ordinary, 100% franked final dividend of 7 cents per share (cps), subject to completion of audited FY20 financial statements.
The current environment continues to present material uncertainty, with a possibility of major economic contraction in the short term.