Insider: time to buy Mothercare and rail stocks?5 Oct 2020 16:18
https://www.ii.co.uk/analysis-commentary/insider-time-buy-mothercare-and-rail-stocks-ii513666
Directors in two struggling sectors are backing a revival with their own money. Here’s the rationale
A year after Mothercare (LSE:MTC) stores in the UK were plunged into administration, its management team have sent a message that they believe the turmoil is now firmly in the past.
Thursday's disclosure of share purchases by chairman Clive Whiley and chief financial officer Andrew Cook is the first by directors this year, and comes a week after full-year results highlighted the potential of Mothercare's new asset light franchise model.
Without the loss-making UK stores, the baby products company has been rebuilding through its network of franchise partners in 40 countries, who operate 791 stores worldwide. Its Mothercare branded products are also soon to appear in Boots stores in the UK and Ireland.
Stockwatch: the future of Mothercare
The closure of franchise stores due to Covid-19 lockdowns frustrated progress earlier in the year, but Whiley insists the company is still in better shape than when it entered the pandemic.
It has secured a new 20-year agreement with its biggest franchise partner, Alshaya Group, and there are signs that Mothercare is becoming more established as a global brand.
While this is clearly a work in progress, Whiley believes the group has the potential to deliver annual operating profits in the region of £15 million. His optimism has the support of analysts at Shore Capital, who have reiterated their “buy” recommendation and said the company is well placed to “survive and thrive”.
Shares, which plunged to as low as 4p in March, closed on Friday at more than 11p after rallying from the 8.3p seen prior to the full-year results. The £6.4 million adjusted loss highlighted the pain of last November's restructuring and the administration process for the cash-hungry UK business, whose £30 million of operating losses had threatened the wider global business.
The UK retail arm did not make an annual operating profit in over 10 years, despite the support of a £100 million fundraising in 2014 and various efforts to restructure the business. Rather than spending more time and money on trying to fix “the conundrum of UK retailing”, the company chose to focus on building the Mothercare brand around the world.
Whiley said in last month's results:
“We estimate that there are at least 30 million babies born every year in the world, into markets addressable by the Mothercare brand, yet only 700,000 in aggregate in the UK. Hence whilst the UK is important for our brand heritage, it is certainly not the singular growth engine of the group.”
He is currently overseeing discussions on a refinancing of the group's £13.7 million of debt, while also looking for a new chief executive to succeed Mark Newton-Jones who stepped down in January. Whiley, who was appointed chairman in 2018, has overseen the running of the business with day-to-day
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