Neighbourhood convenience store operator McColl's Retail (MCLS) is marked down 8.8% to 155p as disappointing current trading and a cautious outlook trigger downgrades. Like-for-like sales were in negative territory over the past 13 weeks as the convenience sector turns 'increasingly competitive'.

Following on from its early 2014 IPO (28 Feb), McColl's maiden full-year figures to November are robust. Profit before tax shot up from £4.4 million to £12.6 million, buoyed by stronger operating profit plus a lower interest bill following a post-IPO debt refinancing.

Web chart - McColl's - March 15

Expanding through convenience store acquisitions while converting existing newsagents into food & wine convenience outlets, McColl's total sales rose 4.1%, including like-for-like growth of 0.7%.

But the bad news is adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) grew 7% to £36.6 million, £1 million shy of expectations at the time of the IPO. Moreover, investors are distinctly unimpressed with a 1.2% same-store sales decline for the opening 13 weeks of the current fiscal year.

McColl's, also the UK's biggest post offices operator, is being hit by heightened competition in the convenience channel. Grocery sector deflation, reflecting weaker commodity prices and savage price cuts on food and alcohol by the supermarket majors, isn't helping either.

Numis Securities cautions that 'the current trading update shows further progress in terms of the store acquisition programme, although the industry backdrop suggests the group may have to operate with negative like-for-like sales for some time.'

Sticking with its 'buy' rating, the broker swipes £2.5 million from this year's EBITDA estimate, downgraded to £37.5 million. In addition, a chunky £3.5 million is knocked off of Numis' 2016 estimate, now lowered to £39.5 million.

Issue Date: 03 Mar 2015