Stocks in Focus: McColl’s

This week I am focusing on McColl’s Retail Group, the UK-based convenience store retailer with a strong focus on neighbourhood locations (rather than high streets).

Since the early 2000s, McColl’s has been shifting away from being a traditional newsagent and towards convenience food and wine, a market that has been is growing at around 5% per annum due to demographic and structural lifestyle trends. Part of its strategy to grow faster than the market includes converting its existing newsagents into more profitable convenience stores. On top of this, the business has been expanding via the regular acquisition of new stores from independent operators. Today, McColl’s is the second largest operator by market share within the convenience retail space (behind Tesco).

In order to further accelerate its diversification away from its legacy newsagents, McColl’s recently announced a £117m deal to take over a portfolio of nearly 300 convenience stores from Co-op. The CEOs of both groups view the transaction to be in line with their respective strategies: according to Jonathan Miller of McColl’s, the size and location of the stores are perfect for its operating model; and Co-op’s Steve Murrells comments that the stores being sold are too small to accommodate all the firm’s own-brand products.

Investors have thus far received the news positively. Indeed, expectations are that the acquisition will quickly become earnings enhancing thanks to the enlarged economies of scale and synergies from a leaner operating model. The deal is expected to conclude in November (it is still subject to approval from the Competition and Markets Authority) and investors will then be keeping a close eye on how efficiently management are able to integrate the new stores.

http://www.nwbrown.co.uk/library/

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