Shares in global mother and baby retailer Mothercare (MTC) dipped 1.8% to 323p after placing its Australian business into administration. Yet analysts don't believe it will have a material impact on group earnings forecasts. Stockbroker N+1 Singer even goes as far as saying any share price weakness on the announcement is a '(buying) opportunity'.
The £285 million cap in November 2012 flagged the possible sale of its minority stake in loss-making Mothercare Australia. Talks with the Myer Family have subsequently collapsed, forcing the UK-listed group to pull the plug on the operation which has been hard hit by a downturn in trading conditions.
Mothercare has already made a £10.6 million provision for the investment and was working on two week payment terms. This should limit any impact on profits and cash.
The Australia business accounts for 7% of its international retail sales, equal to £51 million annual revenue. It says: 'the expected profit impact is minimal' and the Australian arm's demise 'does not change our overall view of International profitability going forward.'
Execution Noble analyst Sanjay Vidyarthi notes that 'the joint venture was loss-making and the elimination of these losses (through the sale of the business or otherwise) was already in guidance.' He maintains a 'sell' rating on the stock.
N+1 Singer is more bullish, maintaining its 'buy' rating. The stockbroker reckons any further write-off to the investment will be limited to no more than £500,000. It cannot rule out another operator could still buy the rump of the business out of administration and establishing a new franchise partnership. However, the stockbroker concludes: 'Clearly this scenario doesn't look likely after today's announcement but the door is open for someone to pick up one of the market's leading players and cherry pick the stores in the estate.'
Guided by the former boss of DVD rental group Lovefilm, chief executive officer Simon Calver has overseen the turnaround of Mothercare since April, although prospects remain uncertain in a difficult retail environment. A third quarter update issued earlier this month (17 Jan) proved largely uninspiring, revealing UK like-for-like sales down 5.9% over the 13 weeks to 12 January, although international retail sales rose 12% year-on-year.
Mothercare is in the midst of closing loss-making stores in the UK, where low levels of UK high street footfall persist and the company faces an ongoing structural challenge from cheap internet-based competition and large supermarket groups.