McBride rises up the FTSE food chain

By This Is Money
Updated: 11:43 EDT, 27 October 2010

The FTSE index fell 21 points or 0.36 per cent to 5707 since last Wednesday to yesterday's close, for what has been effectively sideways trading over the last two weeks.

Nothing extraordinary has happened on the global economic front.

Unsurprisingly the G20 meeting in Korea at the weekend resulted in a call to avoid competitive currency devaluation, something that has dominated the financial press in the last month or so.

However sentiment in US housing may have altered positively, albeit it might be seen as a blip in time, after the National Association of Realtors showed a bigger than expected increase in US existing home sales during September.

On the home front, the UK economy grew during the third quarter by twice as much as expected at 0.8 per cent, while the US Conference Board showed that consumer confidence has increased above analysis consensus during October.

Again as per last week's thoughts, the FTSE100 index should hold 5600 as long as commodities don't plunge, while 5400 should provide stronger support. On the upside 5800-5825 should act as resistance, while through here 6000 is the next obvious level to test.

Big mover of the week: how you can profit

The best performing stock of the week within the FTSE 350 came from McBride, the non-branded household goods manufacturer, up 14.29 per cent to 186.4p, as the company announced it was trading in line with market expectations.

In June this year, the company dropped from 179p to 114p over two days, after it announced it was struggling to implement price increases to its customers in the same way that it faced raw material input price inflation and it would take time to pass these costs on.

This factor combined with 'branded' promotional activity led to harsher operating conditions giving rise to a profits warning.

Since then, the company seems to have steered itself back on track, by trimming costs to account for commodity price increases.

McBride has 48 per cent net gearing, which is probably high enough, while the yield of 3.6 per cent and a lowish projected price to earnings ratio of 11.2 for 2011 will make it attractive to income investors.

For capital growth, the shares at 186.4p look high enough for now with the one caveat in that it could be an eye-catching takeover opportunity at some stage.

Keep an eye on...

Waste management business Shanks Group (SKS) which is scheduled to announce its interims next Thursday 4 November.

The company, just over six months ago, was subject to a bid from private equity investor Carlyle Group at 135p a share.

The bid was turned down after shareholders demanded 150p a share, but soon after announcing the termination of takeover discussions, Shanks Group issued a profits warning. This sent the shares to as low as 91p before reversing: the stock closed yesterday at 113.5p.

The news that the UK grew by 0.8 per cent in the last quarter should be encouraging in that GDP data is in part a reflection of how much rubbish we chuck away.

Environmentally friendly: The company disposes of cardboard boxes, paper and carrier bags

The greater the growth, the greater the consumption and the greater the amount of cardboard boxes, paper and carrier bags that need to be disposed of in an environmentally compliant way.

Shanks has recently joined forces with John Laing Investments to jointly bid for PFI contracts, thereby reducing the bidding costs, while reducing its equity stake in PFI contracts, it will increase the operational margin.

It is targeting operating margins for 2011 to double from 3.5 per cent to seven per cent.

The company's 89 per cent net gearing is cause for concern, although the company has recently negotiated a €100 million issue of debt (£87.4 million) at a coupon rate of five per cent, due to mature in October 2015.

The yield of 2.6 per cent is moderately okay but with a current price to earnings ratio of 15.8, the company looks fairly valued.

Shanks really needs to convince the market it can grow faster than the current expectations, otherwise the stock is likely to trade sideways to slightly down for the foreseeable future.

Highlights and rumours from FTSE 350 constituents over the last week include:

• On Thursday, BT Group jumped four per cent to close at 156.3p, after the UK government guaranteed to cover the bulk of the BT Pension scheme's liabilities.

• Tui Travel, the owner of Thomson Travel, slumped 14 per cent to 205p after it restated its 2008/9 results whilst writing off £88 million after the audit, with the chief financial officer Paul Bowtell falling on his sword by handing in his resignation notice.

• Afren the oil exploration company in Africa soared by 14.2 per cent to close at 132.4p after it bought a stake in a Nigerian oil field from Shell & Total.

• On Friday, IT company Microfocus rallied 7.58 per cent to 411.5p on rumours that IBM could make a bid around the 600p mark.

• Betfair, the newly listed person-to-person betting exchange jumped from an IPO price of 1300p to close at 1550p (up 19.2 per cent) on Friday, an impressive debut.

• On Monday Lloyds fell 5.36 per cent at 68p on doubts about major banks foreclosure practices.

• Copper stocks such as Antofagasta and Kazakhmys rose 4.1 per cent and 3.5 per cent respectively to 1321p and 1380p after the G20 meeting resulted in the dollar sliding again.

• Computacenter, the IT data storage firm, added 2.2 per cent after a positive broker note from Investec.

• Yesterday Cairn Energy slipped 7.6 per cent after its third failure in drilling for commercial quantities of oil in offshore Greenland.

• Financial software group Fidessa dropped eight per cent to 1584p after it stated that due to the uncertainty of the markets, it was difficult to make forecasts about its earnings outlook.