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Last week I posted "In the past 7 days McColl's have divested themselves of a further 3 stores (14 so far in November and 79 for the year) leaving them with a current portfolio of just 1,183 stores."
It seems to me that McColl's have divested themselves of another 5 stores since my previous post (19 so far in November and 84 for the year) and therefore it seems to me that McColl's are doing their very best to get their store optimisation plan done and dusted by years end.
In the past 7 days McColl's have divested themselves of a further 3 stores (14 so far in November and 79 for the year) leaving them with a current portfolio of just 1,183 stores.
Of the remaining to be divested only 11 are up for sale and not under offer which is down 4 over the past month with the rest being Under Offer.
Peel Hunt has encouraged investors in convenience store chain McColl’s Retail Group (MCLS) to ‘keep faith with the shares’ despite supply chain issues.
Analyst Jonathan Pritchard retained his ‘buy’ recommendation and target price of 40p on the stock, which closed down 17%, or 3p, at 15p after warning that product shortages would affect profits.
Pritchard said there was ‘no problem with footfall but product shortages mean the sales and margins are under great pressure’, as he downgraded earnings by 16% for this year and 10% for next year.
However, he highlighted the rollout of Morrisons Daily stores – in which McColl’s will rebrand hundreds of its stores – and the strength of performance at those outlets already up and running.
‘It is clear that the shares are not going to enjoy the downgrades but the underlying news on M Daily should offer some backup,’ he said.
‘We continue to believe that in time, the chain will look completely different and would keep faith with the shares. We would be buyers in weakness, as the M Daily transformation is what investors signed up for, and that is what will ultimately be a major positive.’
Nick Bubb, an independent retail analyst, suggested other grocery businesses did not appear to be experiencing these issues as much as McColl’s, which had this year called on investors to help revive the business.
Bubb said: “McColl’s Morrisons Daily stores continue to deliver strong performance post-rollout, fortunately, and the company’s banks remain ‘supportive’, but shareholders who stumped up £30m-£35m in emergency funding back in August may not be so happy.”
Big supermarkets, including Tesco and Sainsbury’s, have recently reported rising sales despite acknowledging supply chain problems. This year the industry has seen a consumer shift back towards shopping in large supermarkets and away from convenience shops, which had benefited last year during lockdowns when many families chose to buy food close to home.
Independents now starting to convert to Morrison Daily's - Harj Dhasee to convert independent convenience stores to Morrisons Daily format.
Gloucester retailer Harj Dhasee is to switch to the Morrisons Daily format, making him the first independent retailer to operate under this model.
The stores are due to switch over around Christmas with the new model fully in place by the end of January.
Morrisons has a stronger own label range offering that I can provide to my customers. I’m really excited to be able to be at the forefront of helping shape the future of Morrisons wholesale into the independent sector.”
Harj said the Morrisons approach suits how he works as well. “They’re very much up for working around the retailer in terms of what they need and what they want. Buying is with them ordering is via them however it’s a pull model rather than a push model, which is very appealing. So we can pull as much or as little as we like. We can use all of our local knowledge, understanding customers, and then we just implement the Morrisons’ strategy on top of it.
While Harj is the first independent retailer to sign up to this model, he expects others to join him soon. “It won’t work for every retailer but there’s been a lot of interest already from others.”
2021 state of play when it comes to McColl's store optimization plan - targeting estate of 1,150 stores:
Number of stores divested, either leases sold or closed when lease expires or break clause in lease reached:
Jan - 9
Feb - 7
Mar - 8
Apr - 6
May - 6
Jun - 10
Jul - 4
Aug - 5
Sep - 6
Oct - 4
First week of November - 11
Total number of stores divested in first 10 months & 1 week of 2021 is 76.
Total number of stores in portfolio 1,186 - 24 Under Offer = 1,162 - 12 up for sale and not under offer = 1,150.
It seems to me by the end of the year McColl's store optimization plan will be all but complete as many of the stores that are currently under offer will have been sold.
McColl’s has linked up with technology firm Ecrebo to start using a receipt system which can add personalised offers and messages to customers as they make purchases.
Richard Crampton, McColl’s chief commercial officer, said: “The importance of the local McColl’s store for our customers has never been clearer.
“Our partnership with Ecrebo is all about better understanding their needs so we can provide a more tailored and relevant shopping experience, rewarding them with offers that are tailored to their shopping in real-time.
“Ecrebo’s software enables us to reach every shopper with bespoke savings whilst giving us the flexibility to target coupons to specific stores or product categories across the estate.”
David Buckingham, chief executive at at Ecrebo, said: “McColl’s customers will receive regular, relevant targeted offers to encourage them back in, to buy the things they want and need from their local store.
It seems to me BGF Investment Management Limited are showing a vote of confidence in McColl's as they have increased their holding from 5.1% (5.88mln shares) to nearly 7.5% (20.88mln shares), seems like they've taken up a good few more shares then were due to them under the Placing / Open Offer.
03 September 2021 - McColl’s Retail Group– Four months too early by Mark Watson-Mitchell:
I note from a piece of research by Singer Capital Markets analyst Matthew McEachran that this convenience stores group could see a decrease in its sales from £1.24bn to £1.16bn in the year to end November. He estimates the group will make a loss of £1m against a £1.4m profit last year.
But that is nothing to really worry about, especially if you are just buying into this group’s shares right now.
That is because, after the massive refunding last month, the group could well be correcting itself sufficiently to see sales rise to £1.2bn next year, with profits rebounding to £7.7m up, worth 2.2p per share in earnings.
For the 2022/2023 year he estimates £1.28bn sales, £15.1m profits and earnings of 4.3p per share.
Like all ‘armchair commentators’ it is easy to look back in retrospection.
I should not have profiled this company when I did, upon reflection I was far too early, such that I would be really enjoying suggesting readers jump in right now as virginal MCLS investors.
Perhaps a trebled-up averaging at these levels would help to recover losses and then make a useful return on funds employed.
The shares at 20.15p certainly have attractions going into the New Year.
McColl’s Retail Group said its wholesale supply contract with Morrisons will not be affected by any potential change in ownership of the supermarket chain, announced on Saturday.
The contract was extended in February 2021 by a further three years to January 2027, providing the business with even greater access to Morrisons’ grocery expertise and brand.
The company said its focus remains firmly on maximising efficiency in its wholesale supply arrangements and the successful rollout of Morrisons Daily conversions across the estate.
McColl’s said it “looks forward to continuing to build on the strong relationship developed with Morrisons over the years to serve our local neighbourhood communities with a high quality convenience offer.”
Morrison(Wm.)Supermarkets (14 weeks to 9 May) - "In addition, 25 McColl's stores were converted to Morrisons Daily during the period, taking the total to 56" = 1 store being converted every 4 days.
Analyst Sophie Lund-Yates said ‘Where Morrisons really powered ahead last quarter is the huge increases in food-on-the-go,’ she said. ‘It seems the world normalising is translating into higher sales in this area.’ - Over the last couple of years this is an area where McColl's have been moving into and has the highest margins, however struggled last year due to covid and stay at home. Hopefully if Morrisons are improving in this area so will McColl's be.
Tobacco & News (Lowest margin products) still make up 48.2% of sales.
Soft drinks, snacks and confectionary (Highest margin products) down to 17.5% from 19.4%
Grocery/Alcohol 34.3% (Converted Morrison Daily's 50% / 172 Newsagents 3%)
Morrison Daily's LFL growth 25%
Cost to McColl's to convert store to Morrison Daily £60,000
500 stores over 1,500sq ft (smallest Morrison Daily conversion 1,300sq ft - suggests to me McColl's/Morrison's maybe looking to convert upto 500 of their stores to Morrison Daily format)
Store optimization programme to be completed by the end of this year.
Biggest increase in costs 1. Capital Expenditure 2. Wages 3. card charges (less people using cash)
One of the main reasons for investing in McColl's was their good dividend yield - With dividend resumption now being restricted to 1.75x down from 2x, it seems to me there is a high likelihood investors will not see a return to dividends being paid for at least the next 2 to 3 years.
quick note - McColl's now intend to reduce store numbers to 1,150, up from the previous announcements of. 1,100.
As of mid March 2021 current number of stores 1,241 - 30 under offer = 1,211 - 20 up for sale with no offer = 1,191 which leaves c41 stores to be closed when lease runs out or break clause in the lease.
Analysts at Peel Hunt upgraded the stock to ‘buy’ from ‘add’ as the wider rollout is “tremendous news for McColl’s”.
“It is clear that the Morrisons brand resonates far more with UK shoppers and the only surprise to us is that it has taken so long for the companies to alight on a solution that allows the rebadging to move from 31 to 300 stores over three years,” the broker commented.
“McColl’s has also refinanced today, which is helpful, and even if current trading is not inspiring (no change to forecasts), the news on Morrisons Daily certainly is: one day we expect the majority of the stores to carry this logo. The shares could easily double.”