Mothercare may be reviewing its UK business and planning to close stores after an £80m loss, but it hopes its international division will help stem the damage.
According to UBS that hope may be misplaced. Analyst Adam Cochrane has moved his recommendation from neutral to sell and slashed his price target from 420p to 100p.
He said the UK market was likely to remain competitive and only cost cutting would prevent its losses continuing. And on the overseas business he said:
International store growth continues at around 15% per annum delivering around £5m growth in earnings before interest and tax. However, we forecast international like for like sales will deteriorate to -2%, or possibly worse, with around 45% exposure to a rapidly weakening Europe where further austerity is all but inevitable.
We value Mothercare on a sum of the parts basis with the UK as the sum of losses for the next 5 years, international on 8 times earnings and central costs on 7 times. At our price target Mothercare would trade on a PE of around 14 times 2013 and a more reasonable 7.5 times 2014 earnings.
Despite the downgrade Mothercare shares are currently 6.3p higher at 163.9p.
Still with retail, Topps Tiles has added 0.25p to 23.25p despite a dip in full year profits from £12.4m to £7.9m. The company said it was trying to broaden its consumer appeal and focus on attracting more affluent customers as well as trade accounts. It said like for like revenues in the seven weeks since the year end had dropped by 6.9%, and it expected economic conditions to remain difficult in 2012, prompting further cost cutting. Espirito Santo said:
The company continues to gain market share, which is now up to 26% (25% last year). Shares trade on just 4.7 times 2012 PE. While there is no short term catalyst for a re-rating, we think Topps will emerge from this downturn stronger.
