Mothercare maintains momentum

It's been a massive year for Mothercare. With a new CEO in place, the baby clothes chain turned down a 275p per share bid approach from America's Destination Maternity, then raised £100 million from a deeply-discounted rights issue. But since the cash call, Mothercare shares have bounced and are currently within reach of a 16-month high.

A 37% jump in underlying pre-tax profit to £13 million for the year ended 28 March was ahead of consensus estimates - UK losses narrowed to £18 million, and international profit inched up to £45.9 million. Key to the improvement was a 2% increase in UK like-for-like sales (down 1.9% the previous year) and stable margin and the closure of 31 loss-making shops. Add back provisions for onerous leases, restructuring costs and other one-offs, and group losses halved to £13 million.

Crucially, the drive to become a digitally-led business is having some success. Online sales rose 18% and now account for 30% of all UK sales. And rights issue proceeds of £95.3 million also meant Mothercare ended the year with £31.5 million of net cash versus net debt of £46.5 million the year before.

"Our International business has delivered growth in terms of space, sales and profit, in spite of increased economic and foreign currency headwinds," said Mark Newton-Jones who took the helm a year ago following the sudden resignation of Simon Calver. "In the UK we have seen our new full price trading strategy and investment in product and service result in stabilised margins and like-for-like sales growth."

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Of course, there's plenty more to be done before the UK business turns a profit again, but things are at least heading in the right direction.

"We expect [UK] losses to reduce further in FY16-17, backed by the more commercial range architecture, exclusive product, enhanced online platform and the start of the store refit programme," says Numis Securities.

"We leave our forecasts for FY16 and outer years unchanged. Mothercare has consistently hit market estimates under the new management team. Although the shares have performed well in recent months, the valuation at 16x PE to cal-16 represents a very modest premium to the sector."

On a sum-of-the-parts basis Numis thinks the shares are worth 250p.

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