Shares in beleaguered fashion-to-furnishings firm Laura Ashley (ALY) rallied 33.3% to 2.2p this afternoon after the cash-strapped curtains, furniture and fashion purveyor was thrown a funding lifeline by US lender Wells Fargo.

While the ailing retailer has received a stay of execution, Nick Burchett, who holds the shares through the TM Cavendish Opportunities Fund (B9F9Z98), thinks Laura Ashley may need to secure another funding deal in the future if it cannot resolve some of its balance sheet issues.

PAINTED INTO A CORNER

On Monday, shares in the paint-to-perfumery seller slumped on a warning that if it remained unable to access the requisite level of funding, it would ‘need to consider all appropriate options’, presumably including a lurch into administration.

Thankfully for worried shareholders, today’s brief financing update stated that talks between lender Wells Fargo and major shareholder MUI Asia Limited over the rattled retailer’s immediate funding requirements have concluded constructively.

THROWN A LIFELINE

Apparently, the group ‘should be able to utilise requisite funds from its working capital facility with Wells Fargo to meet its immediate funding requirements’, although once again, Laura Ashley stressed ‘this is not a cash injection by MUI Asia Limited into the group’.

It added: ‘The company welcomes the support from MUI Asia Limited and continues to review its working capital needs on an ongoing basis. The company will update shareholders in due course in relation to the review of its working capital needs.’

LAURA ASHLEY NEEDS TO ‘DOUBLE DOWN’

Cavendish Asset Management money manager Burchett cautioned that while the funding lifeline represents good news for the company ‘in the short term’, it might not hold up for long.

He said: ‘There are balance sheet constraints and the inescapable problem on the high street of high business rates which mean the company may end up looking to secure more short-term funding in the near future.’

Burchett added: ‘While it hasn’t moved with the times, the company now needs to double down on the vintage styles and luxury brand image it has, with the breathing room it’s been given by this funding arrangement. Otherwise it could be curtains for another well-known high street name.’

READ MORE ABOUT LAURA ASHLEY HERE

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Issue Date: 19 Feb 2020