Stock of the day 18/11/2015 – Mothercare PLC

Can Mothercare get investors to, well, care when the company posts its interim results on Thursday?

After a tumultuous 2014 saw the stock enter the New Year at a measly £1.72 (not radically far away from its recent 2011 nadir) Mothercare got off to a pretty stellar start to 2015. Mid-January saw the company release its Christmas results, complete with a 1.1% rise in like-for-like UK sales and a 2.2% jump in worldwide sales. A sustained strong performance following this announcement helped see Mothercare tickle £2 for the first time since its £100 million rights issue back in October, before the stock finally crossed that level in mid-March.

Mothercare’s quietly solid growth extended into April, boosted by news in the middle of the month that UK sales had increased 1.5% in Q4 with an ever better 11.4% rise in international sales (admittedly reduced to 5.5% when those pesky currency headwinds are factored in). Add onto this a 1.5% jump in total full year sales and Mothercare kept on climbing, reaching £2.25 towards the end of May.


(Source: IT-Finance.com 18/11/2015)

The company’s growth really kicked in here, as Mothercare announced a 37% increase in full year pre-tax profit to £13 million, that it had shrunk its UK underlying losses to $18 million from £21.5 million the year before AND that its expansion worldwide now sees its international presence account for 62% of its sales. With investors impressed Mothercare subsequently intensified its surge, culminating in a 12 month high of £2.97 by mid-July.

However, Mothercare’s year began to unravel with its Q1 statement on the 23rd July. A 3.5% drop in total sales, arising from continuing UK store closures and a currency headwind-hurt international performance, saw the stock fall away from its peak to the £2.70 region. To make matters worse, just as the stock rebounded back to £2.90 by the start of August the Asian issues of that month exacerbated Mothercare’s woes, causing the stock to fall all the way back to £2.21 by the middle of October.

That month’s Q2 results provided a brief moment of respite for the stock; a like-for-like sales rise of 6.6% against the 1.3% seen the year before helped boost the stock back to £2.50. Yet the realities of that report, which included an underperforming UK division, the continual impact of currency headwinds and the recent issues in the Asian markets, soon kicked in, pushing the stock back to a current trading price of £2.28 (IT-Finance.com, 18/11/2015).

In terms of its interim results on Thursday, analysts expecting underlying pre-tax profit to have risen from £3.3 million to £7.9 million year-on-year.

Mothercare PLC has a consensus rating of ‘Hold’ with an average target price of £2.33.