Peel Hunt has downgraded McBride PLC's (LON:MCB) rating to ‘hold’ from ‘buy’ while cutting its target price to 110p from 165p, based on earnings multiples following a profit warning.
In a note to clients, Peel Hunt analysts said: “McBride has announced that profits will be 10-15% below last year as input costs are falling slower than expected and logistic costs are higher than expected.
READ: McBride shares drop on profit warning
“We expect to reduce our forecasts by about 20% from £36mln to £28mln and we were below consensus of £37.6mln. Clearly this is very disappointing news. New earnings will be about 11p per share and the shares are unlikely to trade on more than 10x earnings."
For the year ended 30 June, 2018 McBride had reported adjusted pre-tax profits of £33.2mln.
Peel Hunt analysts pointed out: “This is not a sales issue, but relates to higher input, logistics and service costs. Input costs are likely to be £4mln higher than previously expected, with oil-related prices not falling as much as expected and bicarbonate (used in powders) prices abut £2mln higher than expected.
“The company had hoped to be reducing logistics costs as the new business wins in Central Europe settled in. However, this continues to be an area of concern, exacerbated by having to move warehouse following notice being given by a 3rd party supplier. Overall distribution costs will be about £3mln higher than expected.
"In addition, the distribution issues have reduced service levels, which has resulted in about £1 mln of customer penalties.”
Peel Hunt said it plans to issue forecasts for next year after publication of McBride's interim results tomorrow.
Shares in the FTSE SmallCap-listed manufacturer of private label cleaning products dropped 30% to 90.9p in afternoon trading.